CourtListener 10712654•Tatum v. Fairstead Affordable LLC
Texte intégral
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
JOHN C. TATUM III and JCT CAPITAL )
LLC, )
)
Plaintiffs and Counterclaim )
Defendants, )
)
v. ) C.A. No. 2022-0970-JTL
)
FAIRSTEAD AFFORDABLE LLC, FCM )
AFFORDABLE LLC, JD2 AFFORDABLE )
LLC, STUART FELDMAN, JEFFREY )
GOLDBERG, FSC EF&F LLC, FAIRSTEAD )
CAPITAL LLC, FAIRSTEAD CAPITAL )
MANAGEMENT LLC, JD2 REALTY )
MANAGEMENT LLC, FA DC LLC, FSC )
REALTY MANAGEMENT LLC, and SDF )
FUNDING LLC, )
)
Defendants and Counterclaim )
Plaintiffs. )
POST-TRIAL OPINION
Date Submitted: May 23, 2025
Date Decided: October 27, 2025
Thomas A. Uebler, Adam J. Waskie, Sarah P. Kaboly, MCCOLLOM D’EMILIO
SMITH UEBLER LLC, Wilmington, Delaware; Rudolf Koch, John D. Hendershot,
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Sara Shaw Tatum,
Coral Gables, Florida; Attorneys for Plaintiffs and Counterclaim Defendants.
Ryan D. Stottmann, Thomas P. Will, Alec F. Hoeschel, MORRIS, NICHOLS, ARSHT
& TUNNELL LLP, Wilmington, Delaware; Rollo C. Baker, Jared Ruocco, Edgar
Aliferov, ELSBERG BAKER & MARURI PLLC, New York, New York; Michael B.
Carlinsky, Evan Forbes, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New
York, New York; Attorneys for Defendants and Counterclaim Plaintiffs.
LASTER, V.C.
A hedge fund manager with capital, an attorney with legal savvy, and an
entrepreneur with energy and vision formed a fund complex that invested in
affordable housing projects. The fund complex operated under the trade name
“Fairstead.”
William Blodgett was the entrepreneur. A few years later, he recruited John
Tatum to join the Fairstead team. Tatum built a new segment of the business from
scratch that focused on deals using low-income housing tax credits. The group formed
an LLC to serve as the vehicle for pursuing the tax credit deals. The hedge fund
manager and the attorney indirectly controlled the LLC. Tatum received a 5.25%
interest.
With Tatum leading the charge, the tax credit business boomed. Blodgett and
Tatum came to believe that they had created significant value (they had) and
deserved a substantial, even controlling equity stake in the business. They spoke with
the attorney, who sympathized with their position, but told them an equity
restructuring would not happen until the hedge fund manager had recovered his
capital. That was several years away.
Blodgett and Tatum wanted a restructuring in the near term. They also
realized that if the negotiations did not pan out, they needed an alternative.
Blodgett and Tatum came up with two plans. “Plan A” contemplated
restructuring the business so that they would own the bulk of the equity and have
control. “Plan B” was to leave and start their own business.
Blodgett and Tatum discussed various ideas with the attorney. Eventually,
Blodgett met with the hedge fund manager. He flatly rejected the restructuring
concept. Tatum panicked and downloaded both personal and company files to a
portable drive.
After the hard no, Tatum told the attorney that he planned to leave. He
proposed that they work on a transition plan, and the attorney agreed. During the
transition period, the group discussed a potential joint venture.
The attorney then saw an invoice for a “Newco Formation” that was sent to
Blodgett’s work address. The attorney concluded that Blodgett and Tatum did not
intend to cooperate on a transition plan.
The hedge fund manager terminated Blodgett for cause. Tatum resigned
without cause. Fairstead accepted his resignation and insisted that he work through
his notice period. Tatum did and thought he left on good terms.
After his departure, the hedge fund manager and the attorney caused
Fairstead to exercise its right to repurchase Tatum’s equity interests. But instead of
following the contractual valuation process, they offered him a lowball price. When
Tatum rejected it, they retroactively terminated him for cause and declared that all
of his equity interests were forfeited.
Meanwhile, Blodgett started his own affordable housing business. Tatum did
not join him. He took a year off and then went to work in a related industry.
2
With the hedge fund manager and the attorney playing hardball, Tatum sued
the Fairstead entities, the hedge fund manager, and the attorney. The defendants
filed counterclaims.
This post-trial opinion rules in favor of the defendants on one counterclaim.
They proved that Tatum breached his employment agreement by downloading and
retaining company documents. As damages, they can recover the expenses they
incurred investigating Tatum’s breach. This post-trial opinion otherwise rules in
favor of Tatum.
I. FACTUAL BACKGROUND
The facts are drawn in part from findings made in a related arbitration
between Blodgett and Fairstead (the “Blodgett Arbitration”).1 After Fairstead
terminated Blodgett for cause, Blodgett filed an arbitration against Fairstead.2
Fairstead sued here to block the arbitration, and the court directed the parties to
arbitrate the claims arising under Blodgett’s employment agreement.3
After post-trial argument in this case, the arbitrator issued an award in the
Blodgett Arbitration. Whether the findings in the Blodgett Arbitration bind Tatum
See Blodgett v. Fairstead Cap. Mgmt. LLC, et al., Interim Award, No.
1
5425000366 (JAMS Apr. 2, 2025) (Roberts, Arb.). Citations in the form “Arb. Decision
at __” refer to the arbitration decision.
2 See Fairstead Cap. Mgmt. LLC, et al. v. Blodgett, C.A. No. 2022-0673-JTL
(Del. Ch.).
3 Fairstead Cap. Mgmt. LLC, et al. v. Blodgett, 288 A.3d 729, 761 (Del. Ch.
2023).
3
turns on the law of issue preclusion.4 “When an issue of fact or law is actually litigated
and determined by a valid and final judgment, and the determination is essential to
the judgment, the determination is conclusive in a subsequent action between the
parties, whether on the same or a different claim.”5 An arbitration operates as a prior
action for purposes of issue preclusion.6
A judgment ordinarily does not bind a non-party,7 but it can if a party and the
non-party are in privity. That elusive term means they have a pre-existing legal
relationship, outside of the prior litigation, that is sufficient to cause the adjudication
to be binding.8
Tatum was a central figure in the Blodgett Arbitration, but not a party to it,
so the arbitrator’s findings only bind Tatum if he was in privity with Blodgett.
4 The arbitration award titles itself as an “Interim Award,” but the parties have
not argued that it lacks the same force as a final award for preclusion purposes.
5 Restatement (Second) of Judgments § 27 (A.L.I. 1982); see Messick v. Star
Enter., 655 A.2d 1209, 1211 (Del. 1995) (“Under the doctrine of collateral estoppel, if
a court has decided an issue of fact necessary to its judgment, that decision precludes
relitigation of the issue in a suit on a different cause of action involving a party to the
first case.”). Delaware courts frequently rely on the Restatement when analyzing
issue preclusion. See In re Columbia Pipeline Gp., Inc., 2021 WL 772562, at *16 (Del.
Ch. Mar. 1, 2021) (collecting authorities).
6 See LG Elec., Inc. v. InterDigital Commc’ns, Inc., 98 A.3d 135, 138–39 (Del.
Ch. 2014), aff’d, 114 A.3d 1246 (Del. 2015) (collecting authorities).
7 Restatement (Second) of Judgments, supra, § 34(3).
8 See In re Columbia Pipeline, 2021 WL 772562, at *17. That is only one of the
circumstances where a judgment can bind a non-party. See id. (identifying others);
Restatement (Second) of Judgments, supra, § 62 cmt. a (same).
4
Partners in a common law partnership are in privity with respect to the subject
matter of the partnership.9 A common law partnership is simply “a joint enterprise
in pursuit of profit,”10 with a joint venture functioning as a common law partnership
directed at a more specified objective.11
Tatum and Blodgett formed a common law partnership and operated as joint
venturers for purposes of their plan to negotiate for a controlling interest in
Fairstead’s affordable housing business and, if Fairstead refused, leave Fairstead to
start a new business.12 The arbitrator made a similar finding, concluding that Tatum
and Blodgett were joint venturers for those purposes.13
As a result, Tatum and Blodgett are in privity for purposes of issue preclusion
for factual findings relevant to this litigation. This decision accordingly adopts the
arbitrator’s findings of fact to the extent they were (i) “actually litigated and
9 See Bradshaw v. Trover, 1999 WL 463847, at *2 (Del. Ch. Apr. 30, 1999) (“As
at common law, partnerships may still sue and be sued by use of the names of
individual partners without naming the partnership itself.”).
10 26 Cap. Acq. Corp. v. Tiger Resort Asia Ltd., 309 A.3d 434, 448 (Del. Ch.
2023); see Ramone v. Lang, 2006 WL 905347, at *12–14 (Del. Ch. Apr. 3, 2006); In re
Est. of Fenimore, 1999 WL 959204, at *5 (Del. Ch. Oct. 8, 1999).
11 48A C.J.S. Joint Ventures § 3.
12 By June 2020, Tatum and Blodgett represented to counsel that they had
agreed on terms for their “joint venture.” JX 219. As joint venturers, they requested
advice on negotiating for a controlling equity interest in Fairstead or pursuing their
own business. JX 226.
13 See Arb. Decision at 15, 18.
5
determined” in the Blodgett Arbitration, (ii) “essential to the judgment,” and (iii)
concerned the period when Blodgett and Tatum were in privity, i.e., through the point
when Fairstead terminated Blodgett.14
The facts are based on the post-trial record. Trial took place over five days. The
parties submitted 2,593 exhibits, lodged twenty depositions, and reached agreement
on 57 stipulations of fact. Ten witnesses testified live.15 Each party bore the burden
of proving its claims by a preponderance of the evidence.
A. Fairstead’s Origins
Blodgett, Stuart Feldman, and Jeffrey Goldberg identified a business
opportunity in the affordable housing market. Each brought something to the table.
Blodgett was an entrepreneur with energy and vision. Feldman was a hedge fund
manager with capital. Goldberg was an attorney with legal savvy. In 2013, they
founded what eventually became Fairstead.16
In substance, Fairstead was a fund complex that invested in affordable housing
projects. As such, it consisted of a web of affiliated entities under the common control
of the fund complex’s principals. In 2014, Feldman, Goldberg, and Blodgett formed
14 In re Columbia Pipeline, 2021 WL 772562, at *16.
15 Citations in the form “[Name] Tr.” refer to witness testimony from the trial
transcript. Citations in the form “[Name] Dep.” refer to witness testimony from a
deposition transcript. Citations in the form “JX __ at __” refer to trial exhibits.
Citations in the form “PTO ¶ __” refer to the parties’ pretrial order.
16 Blodgett Tr. 684. In this opinion, “Fairstead” refers to the fund complex at
large.
6
Fairstead Capital Management LLC (the “Management Company”) to serve as a
general partner for a series of special purpose vehicles that would invest in affordable
housing projects. The Management Company also received a carried interest in the
projects.17
Feldman, Goldberg, and Blodgett participated in management to varying
degrees. Feldman was the exclusive source of capital and ultimate decision-maker
but kept a low profile and did not involve himself in day-to-day operations. He
preferred to communicate through Goldberg and rely on him for information.
Goldberg served as Chief Executive Officer and was nominally in charge of
day-to-day operations. But Goldberg knew little about the affordable housing
business and was responsible for other aspects of Feldman’s far-flung business
interests. Goldberg did not attempt to learn the business until after Blodgett and
Tatum made their demands for a controlling equity stake.18
Blodgett ran the day-to-day operations. He focused initially on acquiring
market rate, rent-stabilized housing units in New York City.19
17 See JX 104.
18 Tatum Tr. 103–04, 111–12.
19 Tatum Tr. 20–21; Goldberg Tr. 971.
7
B. Tatum Joins Fairstead.
In early 2016, Blodgett recruited Tatum to develop a new business line focused
on deals involving low-income housing tax credits (the “Tax Credit Business”).20 In
April 2016, Tatum signed an employment agreement with JD2 Realty Management
LLC, a Fairstead affiliate.21
In the Employment Agreement, Tatum agreed to devote his “best efforts and
time, effort and loyalty to the business of [Fairstead],” to work for Fairstead “in good
faith and to the best of [his] ability,” and to “perform [his] duties in compliance with
. . . [Fairstead’s] written policies and procedures.”22 The Employment Agreement
specified that Tatum could “not serve as a director, employee, consultant or advisor
to any other person or entity,” nor engage in any activity that may create “an actual,
potential or apparent conflict” with Fairstead’s interests.23 Tatum further agreed that
“[d]uring [his] employment, and thereafter without limitation of time,” he would “not
make any negative statement or otherwise take any disparaging action . . . regarding
[Fairstead], or any individual employed by [Fairstead].”24
20 Blodgett Tr. 687–88; Tatum Tr. 12–13.
21 JX 80 (the “Employment Agreement”).
22 Id. § 1(H).
23 Id.
24 Id. § 3(B).
8
Tatum also agreed that “both during [his] employment and after its
termination,” he would “not reveal to any person or entity any of the trade secrets or
proprietary or confidential information of [Fairstead].”25 The contractually protected
categories of information included
know-how, techniques, . . . processes, strategies, . . . customer lists,
customer histories, customer information, investor lists, investor
histories, investor information, . . . pricing information, projects, notes,
memoranda, reports, . . . budgets, plans, projections, forecasts, financial
information, trading strategies, investment models or other models, . . .
actual or proposed investments, assets under management, personnel, .
. . forms, contracts, agreements, . . . [and] plans and proposals in
whatever form.26
Tatum agreed to “not use or attempt to use any such information in any manner,
except as may be required in the ordinary course of performing [his] duties as an
employee of [Fairstead].”27
After Tatum came on board, Fairstead formed Fairstead Affordable LLC to
serve as the vehicle for pursuing the Tax Credit Business. 28 Through his personal
entity JCT Capital LLC, Tatum owned a 5.25% interest in Fairstead Affordable. The
balance was owned by FCM Affordable LLC (64.75%) and JD2 Affordable LLC (30%).
Feldman and Goldberg indirectly controlled Fairstead Affordable through FCM
25 Id. § 3(A)(1).
26 Id.
27 Id.
28 See JX 5280.
9
Affordable and JD2 Affordable. Blodgett indirectly owned a 9.71% interest through
an ownership interest in FCM Affordable.
C. The Tax Credit Business
Before Tatum joined Fairstead, no one there “knew how to do a tax credit
deal.”29 Tatum figured it out, and with him leading the charge, Fairstead “started
doing tax credit deals, and the company just kept growing.”30
Tatum focused on acquiring properties that qualified for federal low-income
housing subsidies, then using tax credits and tax-exempt bonds to finance
improvements.31 The business generated multiple streams of revenue: development
fees, incentive management fees, and the capital gains from an eventual sale.32
Compared to a traditionally financed real estate investment, a tax credit deal
required considerably more work between signing and closing. It could take more
than a year. During that time, the developer had to secure the tax credits and any
tax abatements, potentially issue tax-exempt bonds, raise equity capital from limited
partners (including negotiating with limited partners over the partnership
agreement), obtain approval for construction plans, secure building permits, hire a
29 Goldberg Tr. 978; see JX 386.
30 Goldberg Tr. 971.
31 Tatum Tr. 28.
32 Tatum Tr. 29–30; Kalsi Tr. 636–39, 650–51.
10
general contractor to conduct renovations, and potentially restructure any contract
with the Department of Housing and Urban Development (“HUD”).33
Feldman provided the capital for the tax credit deals. That included funding
all pre-development costs, such as rate locks for debt financing and the fees for
architects, engineers, and other professionals. Feldman also funded hard deposits
that would be forfeited if the deal failed to close regardless of the reason. A soft
deposit, by contrast, is refundable if specified conditions are not met, such as a failure
to secure financing or tax credits. The Fairstead team believed that offering hard
deposits gave them an advantage when competing for deals.
Feldman claimed at trial that he had invested over $300 million to build the
affordable housing business as a whole—not just the Tax Credit Business.34 Much of
that capital funded property acquisitions and financing for the traditional affordable
housing business, with approximately $40 million supporting the platform at large.35
Only a relatively small portion remained committed to the Tax Credit Business,
because the tax credit deals involved lining up equity and debt financing at closing
that enabled Feldman to recoup the bulk of his pre-development costs.36
33 Tatum Tr. 21–22, 28–29.
34 Feldman Tr. 1130.
35 Goldberg Tr. 972–73.
36 Tatum Tr. 31.
11
D. Fairstead Affordable’s Growth
When Tatum joined in 2016, Fairstead Affordable’s portfolio consisted
primarily of several thousand units of rent-stabilized housing in New York. During
Tatum’s employment, the Tax Credit Business grew. Between 2017 and 2022,
Fairstead Affordable completed deals with developer fees totaling approximately
$181 million.37
Those fees should have resulted in distributions. Under Fairstead Affordable’s
operating agreement (the “Operating Agreement”), the company had to make
distributions “no less frequently than quarterly or within thirty (30) days following
receipt of any income or proceeds of a Deal capital transaction” if its assets exceeded
liabilities.38 Yet Tatum did not receive any distributions from Fairstead Affordable.
E. The Other Projects
During his time at Fairstead, Tatum worked on two projects outside of
Fairstead Affordable. One was a legacy portfolio of 905 units that Feldman acquired
before Tatum arrived (the “Legacy Portfolio”). The other was a portfolio of general
partner interests in seventeen real estate deals (the “Hampstead Portfolio”).
37 See JX 1270 at ’003 (“FA Revenue” sheet at columns C, F); JX 1168 at ’002;
JX 1074; JX 1158 at ’002 (“FA NPV LIHTC - Detail” sheet). See also Tatum Tr. 37–
38.
38 JX 5280 §§ 4.1, 4.2.
12
1. The Legacy Portfolio
In 2017, the Legacy Portfolio failed inspections conducted by HUD. That
adverse event jeopardized Fairstead’s ability to rent the Legacy Portfolio. The
resulting cash crunch threatened Fairstead’s entire business.
Blodgett and Goldberg asked Tatum to work on the Legacy Portfolio. Tatum
accepted reluctantly, because the project took him away from the Tax Credit
Business.39 As additional compensation, Tatum asked for a share of the promote on
any sale of the Legacy Portfolio.40 Goldberg promised Tatum that he would work with
Feldman to get him an equity interest,41 and Blodgett agreed that if necessary, he
would give Tatum a portion of his own share of the promote.42 Tatum also invested
his own money in the Legacy Portfolio though an entity known as FSC EF&F LLC
(the “Friends and Family Entity”).
39 See JX 109; JX 117.
40 Tatum Tr. 54–55. In the real estate sector of the private equity industry, a
“promote” is a sponsor’s share in the profits of a real estate deal above a
predetermined return threshold. See Ian Formigle, What is a Real Estate Sponsor
Promote?, Crowd Street (2025), https://www.crowdstreet.com/resources/investment-
fundamentals/what-is-a-real-estate-sponsor-promote.
41 Tatum Tr. 89–90.
42 Blodgett Tr. 699–700.
13
Tatum successfully renovated the Legacy Portfolio in record time so that it
could pass the HUD inspections. Tatum also put together a refinancing that enabled
Feldman to recapture all of his original equity investment.43
In December 2020, Feldman bought out the minority investors in the Legacy
Portfolio. Tatum received $749,168 in exchange for this investment through the
Friends and Family Entity.44 Tatum never received any compensation in the form of
a promote.45
2. The Hampstead Portfolio
Feldman also wanted to buy the Hampstead Portfolio. Tatum oversaw the
acquisition and received a 9% share of the promote.46 Goldberg received a 67% share
of the promote, even though he never did any work on the project.47
In response to Blodgett and Tatum’s inquiries about a restructuring, Feldman
and Goldberg told Tatum that they wanted to concentrate everyone’s equity
ownership in one entity. To prepare for the eventual restructuring, they asked Tatum
to transfer his 9% share of the Hampstead Portfolio promote to Fairstead Affordable.
Tatum agreed. Tatum understood that he would receive an increased share of
43 Blodgett Tr. 698; JX 1209 at ’003.
44 JX 318 at ’002 (“Summary” sheet).
45 Tatum Tr. 90.
46 JX 174 at ’002.
47 Blodgett Tr. 706–07; JX 174 at ’002.
14
Fairstead Affordable that—at a minimum—provided him with value for the 9%
promote. Otherwise, he would have traded a 100% direct interest in the promote for
a 5.25% interest in the promote, held indirectly through Fairstead Affordable. That
would have been economically irrational, and Tatum never would have agreed to it.
Feldman and Goldberg never increased Tatum’s ownership stake in Fairstead
Affordable, whether as part of a restructuring or to account for his 9% interest in the
Hampstead Portfolio promote. After disputes arose with Tatum, Feldman and
Goldberg claimed that Tatum had forfeited his equity interest in Fairstead
Affordable.48 As a result, Tatum lost his share of the Hampstead Portfolio promote.
F. Blodgett and Tatum Push For A Significant Equity Stake.
As time went on, Blodgett and Tatum came to believe that they had created
tremendous value for Feldman and Goldberg by creating Fairstead Affordable and
the Tax Credit Business (which was true). They received salaries and discretionary
bonuses, but they did not have a meaningful equity stake. Blodgett and Tatum
thought they deserved a significant equity stake. Blodgett and Tatum also wanted
their employees to receive equity as a form of incentive-based compensation. Blodgett
and Tatum wanted a restructuring that would allocate the equity in a manner they
thought was fair.
Feldman was the ultimate decision-maker on any restructuring, but he liked
to remain in the background. Blodgett and Tatum spoke with Goldberg about their
48 See Goldberg Tr. 1096–98.
15
desire for a restructuring, and Goldberg encouraged them to come up with a
proposal.49 Goldberg also promised Tatum and members of his team, including
William Kreinik and Tyler McIntyre, that he was working on getting them equity.50
Blodgett and Tatum’s preferred alternative was to restructure Fairstead
Affordable so that they would hold the bulk of the equity and control the business.
For them, that was “Plan A.” Tatum documented his ideas for a restructuring and
shared them with others, including Blodgett and members of their team.51
When framing his proposals, Tatum envisioned a new entity— “NewCo”—that
would own approximately 50% of the Fairstead Affordable business. Tatum and
Blodgett would share ownership in NewCo and allocate a portion of NewCo’s equity
49 Tatum Tr. 61–62; Blodgett Tr. 708–11. Goldberg denies saying this, and
there are no contemporaneous documents supporting Blodgett and Tatum’s account.
I nevertheless find their testimony credible and reject Goldberg’s denial. It is logical
that when Blodgett and Tatum approached Goldberg, he would have asked them for
something concrete to consider. It is also logical that Goldberg would have repressed
any memory of his involvement. Goldberg was always allied with Feldman. Once
Blodgett and Tatum made their demands and the issue blew up, Goldberg did not
want to be seen as having encouraged the demands that Feldman rejected.
50 Kreinik Tr. 1299–301; McIntyre Dep. 24–44, 80–82; Tatum Tr. 117–18; JX
365; JX 364; JX 366; JX 391; JX 403; JX 5069. Goldberg denies this, but the
employees’ account is more credible. It is logical that when they asked Goldberg for
equity, he would have told them that he was working on it with Blodgett and Tatum.
Asking for equity was a reasonable request. The dispute was over how much.
51 E.g., JX 131; JX 132; JX 154; JX 189; JX 181; JX 226; JX 239; JX 370; JX
375; JX 379; JX 387; JX 5069; JX 437; JX 445; JX 474; JX 475; JX 476; JX 480 at ’003;
JX 501. See JX 5114; JX 5113 at ’002; JX 483.
16
to key team members.52 Feldman would own the other 50%.53 Although it was not
entirely clear what Goldberg would receive, Blodgett and Tatum seem to have
envisioned him participating through NewCo. They did not want to get rid of Feldman
and Goldberg. As Tatum wrote, Feldman and Goldberg had “earned a long term
interest in our success and I want that to be clear we want them forever.”54
Tatum shared these concepts with Goldberg, who encouraged Tatum and
Blodgett to develop them. Goldberg, Tatum, and Blodgett also brainstormed other
possibilities that might be part of a restructuring, including:
• creating a new real estate investment fund with outside capital;55
• obtaining capital from Blodgett’s wealthy family;56
• pursuing a SPAC transaction;57 or
• selling Fairstead Affordable to a third party.58
52 See, e.g., JX 132 at ’004 (2018); JX 226 at ’002 (2020); JX 480 at ’003 (2021).
53 Tatum Tr. 44, 47, 161–62.
54 JX 226 at ’003; accord JX 5112 at ’002 (“[m]ore equitable sharing of the 50%
of the economics that don’t go to Stuart”).
55 Tatum Tr. 99–100; Blodgett Tr. 722, 725; Goldberg Tr. 1086; JX 337 at ’003;
JX 445 at ’003.
56 Tatum Tr. 99–100; Blodgett Tr. 720–21, 754–55.
57 Goldberg Tr. 1086–87; JX 337 at ’003; JX 352 at ’004.
58 Tatum Tr. 119, Blodgett Tr. 719, 722; JX 445 at ’003 (“[s]uggested . . . out
right sale”); JX 337 at ’003 (“[a]imed at . . . exit transaction”).
17
Goldberg even mused with Tatum and Blodgett about the possibility of them buying
Fairstead Affordable.59
Goldberg did not pass any of these ideas along to Feldman.60 At trial, Goldberg
denied knowing that Tatum and Blodgett wanted substantial ownership and control,
but that testimony was not credible. The contemporaneous documents show that
Goldberg both knew what Blodgett and Tatum wanted and was trying to steer them
toward possibilities that Feldman might find acceptable.61
During those discussions, Tatum and Blodgett argued that providing equity
was necessary to secure and retain talented employees.62 Goldberg agreed. As he
acknowledged in his notes in 2019, “This is an industry where senior people want to
share in promote or equity.”63 But Goldberg also told Blodgett and Tatum that an
59 JX 480 at ’003 (“Jeff said ‘maybe better idea is for you guys to buy the whole
company’”); see Tatum Tr. 106, 119.
60 Feldman Tr. 1130, 1152–53.
61 Compare Goldberg Tr. 1003–04, with JX 131 (Tatum emailing Goldberg
about a profit sharing model in which “we set the developer fee ownership % in a new
developer entity for all deals that close the following year”); JX 202 (“[A]ll I want is
simple. Greater ownership of the business we started and continue to grow every
da[y] . . . .”); JX 151 (Tatum’s 2018 annual review requesting a path to own 10% of
Fairstead Affordable by the next year); JX 154 (email Tatum sent Goldberg proposing
to give employees equity); JX 155 (Goldberg’s response to Tatum’s request for more
equity); JX 189 (email Tatum sent to Goldberg proposing an equity incentive plan);
JX 184 (Tatum’s 2019 annual review addressing his interest in an equity stake in
Fairstead Affordable’s projects).
62 JX 154.
63 JX 883.
18
equity restructuring would not happen until 2021 at the earliest, because that was
when Feldman expected to have recovered all of his initial investment. Blodgett and
Tatum initially accepted that timeline.64
G. Blodgett and Tatum Try To Accelerate The Timeline.
Starting around March 2020, Blodgett and Tatum sought to accelerate the
point when the equity restructuring would occur. Contrary to the defendants’
position, there was nothing inherently wrong with that. Blodgett and Tatum never
entered into an agreement that bound them not to raise the idea of a restructuring.
They could pursue an earlier restructuring and advance arguments why it was
warranted. Feldman could say no. But nothing prohibited the ask. That’s how the
free market works.
More importantly for the events that led to this dispute, Blodgett and Tatum
reached the conclusion that getting a near-term equity restructuring was an absolute
requirement for them, to the point where they decided to leave Fairstead Affordable
and start a competing firm if Feldman and Goldberg did not agree. In the abstract,
there is nothing wrong with that either. Employees can leave and go into business for
themselves. They are bound only by their fiduciary duties as employee-agents and
the terms of any employment agreements they have signed, including lawful
restrictive covenants. Nor is there anything wrong with employees being frank about
their plans to leave and go into business for themselves if an employer does not give
64 See JX 155; JX 156.
19
them better terms. That does not constitute an improper threat. The employer can
say no. Again, that’s the free market at work.
Once Blodgett and Tatum reached the conclusion that achieving a near-term
equity restructuring was a necessity, they faced the prospect of hard-nosed
negotiations with Feldman and Goldberg. They needed to start planning their
alternative venture so that they would be ready to leave if the negotiations did not go
well. Having a meaningful plan for an alternative business venture was also essential
to presenting a credible bargaining position in the negotiations with Feldman and
Goldberg. And again, there is nothing wrong with that. As long as employees do not
use their employer’s resources or breach any of their contractual obligations, they can
make preparations to leave and go into business for themselves. That’s capitalism.
With that in mind, Tatum and Blodgett used their personal email accounts to
communicate about their plans and options.65 While that was not problematic in
itself, Blodgett began using his personal account to send confidential Fairstead
Affordable information to his outside advisors so they could assist him in the
negotiations and help him plan for his departure, if that proved necessary.66 That is
not something an employee can legitimately do. To reiterate, an employee can prepare
to start a new business while still employed, but the employee cannot use the
65 Arb. Decision at 16, 18; see Tatum Tr. 247–48.
66 Arb. Decision at 15–19; JX 404.
20
employer’s resources to do it. No one authorized Blodgett to use Fairstead Affordable
information for that purpose.67
When preparing for their negotiation with Feldman and Goldberg, Blodgett
and Tatum continued to pursue two alternatives. The first was a restructuring of
Fairstead Affordable that would bring in NewCo as a new equity owner and result in
Blodgett and Tatum controlling the business.68 The other was to start their own
business if Feldman and Goldberg did not agree. This decision will refer to the former
as “Restructured Fairstead” and the latter as the “Separate Company.”
Evidencing his understanding that he and Blodgett were going to have an open
negotiation over a restructuring with Goldberg and (eventually) Feldman, Tatum
sent Goldberg a model for Restructured Fairstead that envisioned Blodgett and
Tatum gaining a majority of the business over time.69 Goldberg wrote back that he
did not understand what Tatum was proposing. After they discussed the idea,
Goldberg reiterated that there would not be any restructuring until 2021.70 Tatum
and Blodgett regarded that timeline as unacceptable.
67 See Arb. Decision at 26–28.
68 JX 181.
69 JX 189.
70 JX 191.
21
On April 2, 2020, Tatum emailed Goldberg an agenda for a discussion later
that day.71 Tatum started by explaining how challenging it was to conduct employee
annual reviews without being able to offer equity or set expectations about when
equity might be available.72 Tatum told Goldberg that he and the other employees
were “disappoint[ed] . . . with a drawn out process like the one we are experiencing
now.”73 Referring to the lack of clarity on a future equity restructuring, Tatum told
Goldberg, “I will not sell a dream I know nothing about and have no control over.”74
Meanwhile, Blodgett sought advice from Ophir Barone, the Chief Investment
Officer of Caremi Partners. Blodgett’s father-in-law, Donald Sussman, is a wealthy
hedge fund manager, and Caremi is the entity that operates as the Sussman family
office (the “Sussman Office”). Blodgett first contacted Barone in February 2020, and
their discussions ramped up over the spring. They discussed how Blodgett might
achieve a negotiated outcome resulting in Restructured Fairstead. They also
discussed the possibility of the Separate Company. On April 1, Blodgett forwarded
Barone an “FA Business Plan” that Tatum had prepared.75 The “FA Business Plan”
presented a proposal for Restructured Fairstead.
71 Id.
72 Id.
73 Id.
74 Id.
75 JX 188.
22
On April 20, one of Tatum’s team members (Kreinik) informed Barone about a
new tax credit project in Miami.76 That was improper. The Miami project was an
opportunity that belonged to Fairstead Affordable. Blodgett, Tatum, and their team
could not take the project for the Separate Company without Fairstead Affordable’s
consent. The issue became moot because they did not interfere with Fairstead
Affordable’s pursuit of the project, much less secure it for themselves.
As spring turned to summer, Tatum and Blodgett retained the law firm of
Rodriguez & Wright to represent them personally in the negotiations over
Restructured Fairstead and advise on the Separate Company alternative.77
Evidencing that both options were in play, Rodriguez & Wright understood that the
representation might “convert into a Fairstead client matter,” namely work for
Restructured Fairstead.78 Tatum and Blodgett asked Rodriguez & Wright to draft a
proposal for Restructured Fairstead that they could take to Goldberg.79 Tatum and
Blodgett did not tell Goldberg that they had retained a law firm for advice.80
76 JX 201.
77 See JX 210; JX 211; JX 219.
78 JX 5046.
79 Tatum Tr. 74.
80 Tatum Tr. 255; Blodgett Tr. 819.
23
In July 2020, Tatum began working with CEL Compensation Advisors, LLC.81
Tatum had contacted them to provide “advisory services related to the Fairstead
operating companies and investment platform.”82 Tatum’s work with the
compensation consultant shows that he continued to invest his time into bettering
Fairstead. Eventually, Goldberg took over this project.83
On August 24, Tatum and Blodgett met with Barone to discuss their options.84
They focused on the details of Restructured Fairstead. Tatum and Blodgett did not
tell Goldberg about the meeting.
On September 3, Barone sent the proposal to Sussman, writing: “Obviously the
ideal is that we would fund 100% of the capital but I think Will would like to allow
Stuart to fund up to 50% if he so desires.”85 That was the essence of Restructured
Fairstead. Blodgett and Tatum wanted to continue working with Feldman and
Goldberg. The Separate Company option was the fallback alternative if Feldman
refused.86
81 JX 233.
82 Id.
83 See JX 838.
84 JX 275.
85 JX 284.
86 Tatum Tr. 274–80.
24
In October 2020, Tatum and Blodgett discussed the need to “make moves
ASAP.”87 Blodgett had already spoken to the Sussman Office, associated with his
father-in-law. In addition, Blodgett was a member of the wealthy Tisch family, and
at this point he reached out to his family office, Tisch Financial Management (the
“Tisch Office”). A week later, Tatum and Blodgett met with Tisch Office executives.88
H. Tatum and Blodgett Prioritize The Separate Company Option.
In January 2021, Goldberg proposed a long-term incentive plan (“LTIP”) that
would provide employees with equity.89 Goldberg’s efforts showed that he understood
equity compensation was needed and was trying to address the issue. For their part,
Blodgett and Tatum saw Goldberg’s LTIP as a signal that Restructured Fairstead
was unlikely to happen, so they began focusing more on the Separate Company.
By February 2021, Blodgett felt the need to act. In his notes, he described
himself as the “golden goose” who had made Fairstead “a lot of money” while receiving
too little in compensation.90 Blodgett was “[l]everaging my name, my family’s name,
my relationships etc.” while he was “getting NOTHING in return. NOTHING.”91
87 JX 1647.
88 See JX 295; JX 296; Tatum Tr. 280–81.
89 JX 337.
90 JX 373.
91 Id.
25
Blodgett decided he needed to call the question, writing: “I’m 38 years old. The time
is now.”92
On February 25, Tatum and Blodgett sent Goldberg a proposal for
Restructured Fairstead.93 Under their proposal, Blodgett would replace Goldberg as
Chief Executive Officer and Tatum would become Chief Operating Officer. Goldberg
rejected the proposal out of hand. Tatum decided that they had to pursue the
Separate Company option.94 On March 1, he texted Blodgett: “Restarting is a reality.
But not optimal.”95
Blodgett still hoped to convince Feldman to back Restructured Fairstead, but
he began pursuing the Separate Company option more seriously. On April 9, Blodgett
sent a confidential valuation that included historic financial information and
projections for Fairstead Affordable to Steve Warner and Tim Cox, two executives
with the Tisch Office who were responsible for investing the family’s capital.96
Blodgett asked them to keep the information confidential.97 He also reconnected with
92 Id.
93 JX 379.
94 Tatum Dep. 139–42.
95 JX 387. Tatum did not produce any of the texts in the record. In late 2020 or
early 2021, he set his text messages to auto-delete quickly. See Tatum Dep. 389–91;
Tatum Tr. 475. He pointed to difficulties with his spouse as the reason. Tatum Tr.
475. The defendants did not raise spoliation as an issue.
96 JX 404; Blodgett Tr. 720.
97 JX 404.
26
the Sussman Office, asking Barone whether his father-in-law would “still be there”
for him.98 Barone reassured him, and Blodgett later sent a confidential document
containing financial results for all of Fairstead Affordable’s investments to the
Sussman Office.99 Blodgett also forwarded information about a confidential
investment opportunity to the Sussman Office and the Tisch Office.100 Blodgett sent
the materials for “educational purposes” to show his potential backers what an
average team’s affordable housing deal looked like with the expectation that “we
would do far better.”101 He was not trying to deprive Fairstead Affordable of those
opportunities.
The executives in the Sussman Office and the Tisch Office responded
positively, with the chief investment officer for the Tisch Office telling Blodgett that
he would “recommend [Blodgett’s proposed company] as an investment for Laurie
[Tisch].”102 Blodgett downloaded other Fairstead Affordable confidential information
to a folder that he labeled “Affordable Education.”103
98 JX 408.
99 JX 416.
100 JX 443; JX 417.
101 JX 443; see Blodgett Tr. 881–82.
102 JX 453.
103 JX 442; JX 1358.
27
Tatum participated in meetings with Barone. But Tatum reasonably
understood that he and Blodgett had permission to participate in these meetings. For
example, Goldberg encouraged Tatum and Blodgett to meet with the Sussman Office
about a Rhode Island deal to explore the possibility of outside investment.104 Tatum
also knew Blodgett was discussing the Separate Company concept with the Sussman
Office and the Tisch Office.105 But Tatum was not included on any of these emails.
Tatum and Blodgett were partners in their potential venture, but the record
demonstrates convincingly that Tatum did not know Blodgett was sharing
confidential information and would not have supported it.
Meanwhile, Goldberg continued giving mixed signals. On May 14, Blodgett told
Tatum that Goldberg had discussed potentially selling the company.106 Tatum and
Blodgett wanted to place a bid but also felt that “mentally we need to be prepared to
walk.”107
The same day, Blodgett instructed two of his team members (Kreinik and
Adam Sussi) to start working secretly on plans for the Separate Company.108 Kreinik
104 Tatum Tr. 249–50; JX 203.
105 E.g., Tatum Tr. 330.
106 JX 437.
107 Id.
108 Arb. Decision at 20; JX 437.
28
and Sussi prepared models, and Tatum helped them.109 Kreinik and Sussi also helped
develop proposals for a Restructured Fairstead.110 The group kept their
communications about the options secret, using text, personal email accounts, and
personal Dropbox access.
By this point, Blodgett suspected that Feldman and Goldberg were monitoring
his emails.111 He was a bit early. The IT department began monitoring its servers for
unusual downloading activity in June and started monitoring Blodgett’s emails in
August.
I. Blodgett Asks Feldman To Restructure Fairstead Affordable.
On May 18, Blodgett met with Feldman to present his case for change.112 To
convince Feldman to pursue something along the lines of Restructured Fairstead,
Blodgett told Feldman that the employees disliked Goldberg, that Goldberg was not
running the business competently, and that employees would depart en masse unless
Feldman made major changes.113 Blodgett told Feldman, “Everyone is here because
109 Kreinik Tr. 1350–51.
110 Kreinik Tr. 1340–46.
111 See JX 437 at ’003.
112 Blodgett Tr. 723–27.
113 Arb. Decision at 20.
29
of me. But they realize that I have no power. No control.”114 He also told Feldman, “I
built this. . . . Everyone says it’s my company.”115
Blodgett then told Feldman that he would leave absent a restructuring. He
demanded that the restructuring make him a managing member with veto rights,
40% of the equity, and “a path to full control in 10 years.”116
Feldman did not react favorably. He viewed Blodgett’s proposal as an attempt
to take over Fairstead, and he rejected it unequivocally. He also perceived Blodgett
as threatening him with an employee walkout if he did not accept Blodgett’s terms.
But Blodgett was not making a threat, only telling Feldman what he believed was
true. Blodgett also had good reason for his belief. Blodgett, Tatum, and their team
had been frustrated for years over the lack of equity compensation and Goldberg’s
ineffective leadership. They believed they had built the business, were already
managing it, and deserved to participate in the upside through a substantial equity
stake.
Blodgett and Tatum texted about the meeting in real time.117 Later, Blodgett
gave Tatum a full account, including Feldman’s unequivocal refusal. After hearing
what happened, Tatum “panicked” and began downloading documents onto a USB
114 JX 463.
115 Id.
116 Id.
117 JX 466.
30
portable drive.118 He copied his private folder that contained both his own personal
information and Fairstead Affordable information that Goldberg had instructed
Tatum to keep confidential. He also downloaded folders from the shared drive that
contained Fairstead Affordable information.119 In total, the files comprised:
• 700 personal documents, such as tax forms and family real estate documents;
• One personal valuation of his interest in Fairstead Affordable;
• 230 Fairstead Affordable documents that Tatum had been instructed to keep
confidential, such as employee annual reviews, payroll records, and Feldman
and Goldberg’s net worth statements for tax credit applications;
• 1,450 documents from a folder called “Toolbox” that included Fairstead
Affordable’s organizational documents, educational materials about tax credit
deals, public information about HUD programs, and employee onboarding
materials;
• 50 documents from a folder called “Strategic” that included quarterly
performance memoranda for Fairstead Affordable; and
• 20 documents from a folder named “Corporate” that included the Fairstead
Affordable deal pipeline, investment valuations, and publicly available audits.
Tatum testified persuasively that he subjectively believed he was entitled to keep
much of the information, either because it was his personal information or because
he had prepared it and it represented his work product. 120 Tatum returned the USB
drive without using any of the information. There is no evidence that Tatum
118 Tatum Tr. 137–38.
119 See Tatum Tr. 137–49; JX 5299; Crain Tr. 1370–72.
120 Tatum Tr. 146.
31
transferred the information to another device.121 Tatum made an error in judgment
when downloading the information, but he later realized his mistake and did not
misuse any of it.
On June 2, Blodgett met with Feldman again.122 Blodgett pitched Restructured
Fairstead under the name “Fairstead 2.0.” Under this proposal, the operations of the
new Fairstead venture and guarantees backing Fairstead 2.0’s new investments
would be financed from the cash flows from the existing Fairstead business
platform.123 Blodgett would receive 80 to 90% of Fairstead 2.0, which he would share
with key employees. Feldman would be reduced from his existing majority position to
10 to 20%, which would “sunset over time.” Goldberg would get nothing.124
That proposal was worse than what Feldman previously rejected. Not
surprisingly, Feldman rejected this proposal as well. Feldman told Blodgett again
that he would not give away “his company.” He pointedly told Blodgett, “You’re not
my son.”125
121 See Crain Tr. 1368; Tatum Tr. 147–49; Goldberg Dep. 1048–49. Tatum
deleted some of the files before returning the USB drive. Crain Tr. 1377.
122 JX 808 at ’004.
123 Arb. Decision at 21.
124 Id.; JX 808 at ’004.
125 Tatum Tr. 149, 386; see JX 515; Feldman Tr. 1145.
32
After Feldman’s unequivocal refusal, Blodgett met again with Barone. Tatum,
Kreinik, and Sussi came along.126 After the meeting, Kreinik and Sussi sent their
employment agreements to Barone so he could evaluate any restrictive covenants.127
Barone later arranged for Blodgett, Tatum, Kreinik, and Sussi to meet with an
employment litigator at Shearman & Sterling.128
On June 10, Tatum wrote an emotional email to Goldberg. He explained his
plans to leave Fairstead Affordable. Tatum said that he had to leave because “so many
promises have been made without resolution.”129 But Tatum did not want his
departure to harm Fairstead Affordable. He promised Goldberg:
Every organization I have been a part of was left in a better place than
when I started. Fairstead will not be any different. If you take nothing
else from this email, you have my word that should things end, I will
help you.130
He proposed that they work together on a transition plan.131 After receiving Tatum’s
email, Goldberg instructed the IT department to begin monitoring Fairstead’s
systems for any suspicious downloading activity.132
126 Kreinik Tr. 1345; see JX 516; JX 523.
127 JX 516; JX 522.
128 JX 641.
129 JX 545.
130 Id.
131 Id.; see Tatum Tr. 156–58.
132 See JX 614.
33
On June 15, Tatum walked into Feldman’s office and asked whether he would
share control. Feldman said no. The meeting lasted only minutes.133
On June 16, Kreinik downloaded 2,800 files to a USB drive, including project
pipeline lists and human resources information.134 On June 23, Blodgett sent the
Tisch Office a model of financial projections for a new venture. Sussi and Kreinik
created the model.135
J. Blodgett Meets With Feldman A Third Time.
On June 29, Blodgett met with Feldman at his home. Blodgett told Feldman
that he wanted to leave Fairstead and that he thought that Tatum, Kreinik, and Sussi
were also going to leave.136 Feldman told Blodgett, “[Y]ou can’t have conversations
with people in the company about leaving and starting your own company,” and “you
can’t take any employee to work with you including [Tatum].”137
After the meeting, Goldberg hired Jones Day to investigate Tatum and
Blodgett’s conduct.138 Goldberg still wanted a smooth transition, so he prepared a
133 See Tatum Tr. 158–61; Feldman Tr. 1154–55; JX 5113 at ’002; JX 571.
134 JX 5260 at ’021.
135 JX 602; see Arb. Decision at 21.
136 Blodgett Tr. 755–56; Feldman Tr. 1157–58.
137 JX 623; Arb. Decision at 22; see Feldman Tr. 1157–58.
138 Goldberg Tr. 1015–16.
34
transition plan for Blodgett, Tatum, Kreinik, and Sussi.139 The plan contemplated
announcing that Blodgett would leave at year-end “to pursue other opportunities . . .
with Fairstead serving as investor and operational partner in the new to-be-
announced venture.”140 Goldberg also worked on what Fairstead’s participation in the
new venture might entail.
At the end of July, Blodgett, Tatum, Kreinik, and Sussi prepared their
resignation letters.141 They did not send them because Goldberg was attempting to
broker a smooth departure.
K. Blodgett Meets With Feldman A Fourth Time.
On August 4, Blodgett and Feldman met for a fourth time. During the meeting,
they discussed Fairstead participating in a joint venture with Blodgett’s new firm.142
After the meeting, Blodgett, Tatum, Kreinik, and Sussi began following the transition
plan that Goldberg prepared.143 Blodgett was optimistic about a negotiated solution.
139 JX 647.
140 JX 647 at ’005; see JX 648.
141 JX 675; JX 689; JX 2112; JX 2113.
142 Feldman denied any discussion of a joint venture, but his testimony was not
credible. Feldman Tr. 1167, 1222–27.
143 See JX 750; JX 5308; JX 5309; JX 722; JX 738; JX 739; JX 760. See also
Blodgett Tr. 768–69; Tatum Tr. 172–75.
35
He told one of his mentors, “I could be wrong but I think I am on the right path to
getting a transition agreement and releases done.”144
As the summer progressed, that optimism faded. Feldman and Goldberg never
clearly framed the terms on which they would allow Blodgett and his team to leave.
Feldman and Goldberg also sent mixed messages. Feldman styles himself as a tough
negotiator and did not want to make any concessions. Goldberg was more pragmatic
and wanted to get a deal done.
On September 5, Kreinik told Goldberg that he was resigning and understood
he would be released from his restrictive covenants as part of the transition plan.145
Goldberg told him there was no agreement on that point.146
On September 12, Rodriguez & Wright sent an invoice for “Newco Formation”
to Blodgett’s work email.147 Blodgett correctly suspected that Feldman and Goldberg
were monitoring his work emails. He contacted Tatum, who asked Rodriguez &
Wright to recall the email.148 But the recall had no effect on the already-delivered
electronic record, and Goldberg promptly learned about the invoice.149 Goldberg
144 JX 729.
145 JX 755.
146 See JX 1255.
147 JX 1692.
148 JX 1693.
149Seth Hoffman, Fairstead’s General Counsel, encouraged Feldman and
Goldberg to disclose the investigation to Tatum and inform Tatum that there was no
36
concluded that Blodgett and his team did not intend to cooperate on a transition plan
and were instead going to start a new company imminently.
L. Feldman Tries To Squeeze Blodgett.
On September 14, Feldman met with Blodgett and handed him a termination
notice.150 The notice advised Blodgett that he had breached his employment
agreement and was therefore terminated “for reason.”151 The termination notice
purported to cancel Blodgett’s interests in various employment-related equity
interests that he owned.
At the same time, Feldman handed Blodgett a term sheet for a joint venture
that was highly favorable to Feldman.152 It was an obvious pressure tactic: Feldman
was using the threat of a for-cause termination and the loss of his equity to get
Blodgett to accept one-sided terms for the joint venture.153
Fairstead’s outside counsel had prepared for-cause termination letters for
Tatum, Kreinik, and Sussi. The lawyers recommended that Feldman and Golberg (i)
planned transition. JX 5106 at ’002. Feldman and Goldberg decided to keep the
investigation secret and did not ask Tatum to return the documents they knew he
downloaded. They saw value in holding that card to play later.
150 JX 783; Feldman Tr. 1174.
151 JX 783.
152 JX 784.
153 Blodgett Tr. 770–71. Feldman contends the term sheet was a settlement
proposal to avoid litigation. Feldman Tr. 1174–76. If so, it was a settlement proposal
offered as a slightly better option relative to a for-cause termination and the loss of
equity.
37
confront them about their downloading activity and (ii) make clear that there would
not be any transition involving releases from their restrictive covenants.154 But
Feldman and Goldberg did not want to take a hard line with Tatum. Recognizing that
Blodgett was leaving, they wanted Tatum to stabilize Fairstead Affordable and the
Tax Credit Business.155
Because Blodgett did not immediately accept the joint venture proposal, he
viewed himself as terminated. He and Feldman would spend months attempting to
negotiate a resolution, including through formal mediation. They never reached
agreement.156
M. Tatum Resigns.
On October 15, Tatum emailed Goldberg to confirm he was resigning.157 Tatum
acknowledged that he was resigning without “Good Reason.”158 Fairstead accepted
Tatum’s resignation.159 Tatum understood that Fairstead would not require 120-day
154 See JX 5106; JX 5104.
155 JX 5106 at ’002; Goldberg Tr. 1065–70; see Tatum Tr. 171–84.
156 Blodgett Tr. 773–75; JX 789; JX 794; JX 796; JX 800; JX 808; JX 5310; JX
802; JX 798; JX 818; JX 827; JX 828; JX 863; JX 873; JX 5311 (summary of
mediation); JX 942; JX 943 (Blodgett’s counsel’s post-mediation strategy); JX 948
(same); JX 991; JX 992; JX 999; JX 5312 (January 15, 2022, Blodgett notes).
157 JX 860.
158 Tatum Tr. 185–87; JX 851.
159 JX 851 (“As you are resigning without Good Reason . . .”).
38
prior notice under the Fairstead Affordable Operating Agreement, but Fairstead
enforced that requirement. Days later, Sussi and Kreinik resigned.160
On November 3, Blodgett formed Tredway, a new affordable housing company.
On November 5, Blodgett informed Fairstead that he was starting a competing
venture. Early drafts of the Tredway documents identified Tatum, Kreinik, and Sussi
as “founding partners.”161 Sussi and Kreinik joined Tredway. Tatum did not.162
On December 23, after Fairstead’s mediation with Blodgett failed, Fairstead
sent a letter accusing Tatum of improperly retaining Fairstead documents based on
a forensic examination.163 On the same day, Fairstead accused Kreinik of stealing
documents.164
Tatum continued working at Fairstead Affordable through his notice period.
On January 18, 2022, he turned in all of his electronic devices plus a thumb drive. He
represented that he was not keeping “any confidential or Proprietary Information as
defined in Section 3 of [my] Employment Agreement.”165 He only kept two categories
of documents. The first consisted of valuations of units in Fairstead Affordable and
160 JX 850; JX 862.
161 JX 1120 at ’002.
162 Tatum Tr. 205–09; Blodgett Tr. 775–76.
163 JX 978.
164 JX 974.
165 PTO ¶ 40; JX 1016.
39
the employee co-investment vehicle. The second consisted of his annual reviews,
documents relating to Goldberg’s promised restructuring, and his transition efforts,
which he thought he might need if litigation ensued.166 The defendants failed to prove
that any of the documents were competitively sensitive or that Tatum acted
improperly by keeping them.167
Tatum’s last day at Fairstead Affordable was February 10, 2022. When he left,
Tatum planned to wait out his non-compete period. He thought he might work with
Blodgett after it ran, but he also intended to explore other options.168 He ended up
deciding not to work with Blodgett.
166 Tatum Tr. 148, 184–89.
167 Tatum Tr. 189. Through their cross examination, the defendants implied
that Tatum took a sensitive deal pipeline. See Tatum Tr. 446–48 (citing JX 1066).
Tatum in fact photographed a pipeline from 2016 to show there were no deals before
he arrived. The defendants also implied that Tatum misappropriated sensitive
employee information. See Tatum Tr. 448–49 (citing JX 1575). The photo showed one
of Goldberg’s proposals for an equity distribution, and Tatum took it so he could show
that Goldberg made promises about equity (which Goldberg denied making during
this litigation) and that those promises went unfulfilled. The defendants also implied
that Tatum appropriated sensitive “process information.” See Tatum Tr. 445–46
(citing JX 1000). The document reflected high-level know-how that Tatum himself
developed. Last, the defendants implied that Tatum misappropriated and misused
valuation materials. See Tatum Tr. 449–50 (citing JX 1183). As an owner of Fairstead
Affordable equity, Tatum properly kept it. Confirming that fact, the Fairstead
Affordable valuations were openly shared with other holders of its equity. JX 1168.
The aspersions-by-cross-examination did more to undercut the defendants’ credibility
than to impeach Tatum’s or suggest wrongdoing on his part.
168 JX 5314; JX 5315; JX 5316.
40
N. Fairstead Takes Tatum’s Equity.
After Tatum’s departure, Fairstead exercised its right to repurchase his equity.
The operative agreement called for a valuation process to determine a buyout price.
The first step in that process was for Tatum to identify the list of stabilized
deals in which he held equity interests (the “Stabilized Deals”). Tatum provided his
list, expecting Fairstead to follow the valuation process. Rather than doing so,
Fairstead offered Tatum $1.3 million, a figure materially below his contributed
capital and far less than the value of his equity as a whole. Tatum rejected the offer
and asked Fairstead to comply with the valuation mechanism.
Rather than comply, Fairstead sent Tatum a letter claiming that he had been
terminated for cause and declaring that all of his equity interests were forfeited. 169
The letter retroactively set a termination date of May 6, 2021. Goldberg admitted at
trial that Fairstead only decided to take this hardline position after Tatum rejected
the lowball buyout offer.170 Internally, Goldberg told employees that the dispute with
Tatum was over valuation, not a for-cause termination.171
O. This Litigation
On October 26, 2022, Tatum filed this lawsuit against Fairstead Affordable
LLC, FCM Affordable LLC, JD2 Affordable LLC, FSC EF&F LLC, Fairstead Capital
169 See JX 1140.
170 Goldberg Tr. 1029–32.
171 Byrd Dep. 175–76.
41
LLC, Feldman, and Goldberg. Tatum asserted claims for breach of contract, breach
of the implied covenant of good faith and fair dealing, promissory estoppel, unjust
enrichment, and quantum meruit. He also sought declaratory judgment confirming
his continuing equity ownership, an accounting, and a constructive trust on any
profits the defendants derived to which he was entitled.172
Fairstead filed counterclaims against Tatum for breach of contract, breach of
fiduciary duty, aiding and abetting breach of fiduciary duty, and tortious interference
with contractual relations. It also sought a declaratory judgment that Tatum was
fired for cause and a permanent injunction to prevent Tatum from using or
disseminating confidential information.
Each side moved to dismiss the other side’s claims, at least in part. The court
issued a series of orders addressing the motions. The claims generally survived,
except that the court dismissed Fairstead’s counterclaims under the faithless servant
doctrine, for breach of the implied covenant of good faith and fair dealing, for breach
of contract based on Tatum allegedly working for a competitor, and for violation of
his non-solicitation provision. The court also dismissed Fairstead’s claim for a
declaratory judgment determining that Fairstead fired Tatum for cause. The case
proceeded through trial.
172 For simplicity, this decision generally refers to the defendants collectively
as Fairstead.
42
II. LEGAL ANALYSIS
Tatum sought to prove at trial that Fairstead breached the Operating
Agreement by declaring forfeit all of Tatum’s equity interests, abandoning the
appraisal process, making his departure as lengthy, painful, and costly as possible,
and making false promises about an equity restructuring that induced him to stay at
the entity. Tatum proved by a preponderance of the evidence that Fairstead breached
the Operating Agreement in all these ways except the last. Tatum is entitled to
damages for his successful claims.
Tatum also sought to prove at trial that Fairstead is liable for the value of his
share of the Hampstead Portfolio promote under a theory of promissory estoppel and
for the value of his share of the Legacy Portfolio promote under a theory of unjust
enrichment. He proved both claims and is entitled to damages.
Fairstead sought to prove that Tatum breached his contractual obligations,
breached his fiduciary duties, aided and abetted breaches of others’ fiduciary duties,
and tortiously interfered with contractual relations. Fairstead largely failed to prove
its counterclaims. Fairstead proved by a preponderance of the evidence that Tatum
improperly downloaded and retained Fairstead Affordable documents in breach of his
employment agreement. As damages, Fairstead can recover the expenses incurred
investigating Tatum’s breach. Judgment will be entered in favor of Fairstead on this
counterclaim and in favor of Tatum on the rest.
43
A. Tatum’s Claims For Breach Of The Operating Agreement
Tatum contends that Fairstead breached three provisions of the Operating
Agreement. To prevail on a breach of contract claim, the claimant must prove “(i) a
contractual obligation, (ii) a breach of that obligation by the defendant, and (iii) a
causally related injury that warrants a remedy, such as damages.”173 When
determining the scope of a contractual obligation, “the role of a court is to effectuate
the parties’ intent.”174 Absent ambiguity, the court “will give priority to the parties’
intentions as reflected in the four corners of the agreement, construing the agreement
as a whole and giving effect to all its provisions.”175 “Unless there is ambiguity,
Delaware courts interpret contract terms according to their plain, ordinary
meaning.”176
1. Tatum’s Claim For Breach Of The Vested Interest Provision
Tatum contends that Feldman and Goldberg caused Fairstead Affordable,
FCM Affordable, and JD2 Affordable to declare forfeit all of Tatum’s equity interests,
thereby breaching language in the Operating Agreement providing that the equity
173 AB Stable VIII LLC v. Maps Hotels and Resorts One LLC, 2020 WL 7024929,
at *47 (Del. Ch. Nov. 30, 2020), aff’d, 268 A.3d 198 (Del. 2021).
174 Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006).
175 In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (internal quotation
marks omitted).
176 Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012).
44
interests had vested (the “Vested Interest Provision”). Tatum proved that claim and
is entitled to damages.
a. Breach Of The Vested Interest Provision
The Vested Interest Provision states:
The Membership Interest held by [Tatum] as of the date hereof shall be
treated as a “promote” or “carried interest” in exchange for Tatum’s
services as an employee (“Employment”) to one or more Affiliates of the
Company (including Employer), and shall vest (or, as the case may be,
shall be forfeited) to the extent provided in, and subject to, the following
terms.177
Other language in the Vested Interest Provision contemplates five ways Tatum could
leave Fairstead Affordable, each with different implications: (i) resignation for good
reason, (ii) resignation after a change in control, (iii) resignation without good reason,
(iv) termination without cause, and (v) termination for cause. None authorizes
Fairstead to declare Tatum’s equity forfeit.
Tatum resigned without good reason, and Fairstead accepted his resignation.
On June 10, 2021, he told Goldberg that he would resign if conditions did not
change.178 Nothing changed, and Goldberg proceeded as if Tatum had resigned.
Goldberg worked with Tatum on a transition plan and asked him not to tell any third
parties that he was leaving until Fairstead had a communication plan in place.179 On
October 21, Tatum received notice that his resignation had been accepted and
177 JX 5280 § 8.8(a).
178 See JX 545.
179 JX 860.
45
Fairstead was enforcing the 120-day notice period in the Operating Agreement.180
Fairstead also “reserve[d] any and all rights, claims and recourse [it] might have
against you, whether arising by or in contract, law, equity or otherwise.”181 Tatum
agreed not to contest Fairstead’s characterization of his termination and thought he
left on good terms.182 It was not until June 2022, after Tatum rejected Fairstead’s
lowball buyout offer, that Fairstead purported to convert Tatum’s departure
retroactively into a termination for cause and to declare his equity interests “forfeited
and canceled.”183
Fairstead claims it properly forfeited Tatum’s interests based on a retroactive
termination for cause, citing Metro Storage.184 There, the court held that the employer
“had grounds to terminate [an employee] for cause and that they would have done so
if they had known about his secret consulting work.”185 In other words, the employer
found out after the fact about grounds for a for-cause termination that the employee
had concealed. Here, Fairstead grounded the retroactive for-cause termination on
Tatum and Blodgett’s plan to leave Fairstead and start a new company, but they
180 JX 847.
181 Id.
182 See JX 916; JX 1016 at ’002; Tatum Tr. 171–84.
183 JX 1140.
184 See Metro Storage Int’l LLC v. Harron, 275 A.3d 810 (Del. Ch. 2022).
185 Id. at 881.
46
knew the relevant details before accepting Tatum’s resignation. Under those
circumstances, Fairstead cannot retroactively recharacterize Tatum’s departure as a
termination for cause.
Fairstead breached the Vested Interest Provision by purporting to forfeit his
interests based on a retroactive termination for cause. Tatum is entitled to damages
for that breach.
b. The Remedy For Breach Of The Vested Interest Provision
Tatum proved that Fairstead had no basis to forfeit his equity. Under the
Operating Agreement, Tatum was entitled to the value of the Stabilized Deals. As
damages, Tatum is entitled to that amount.
i. Which Deals Were Stabilized
Tatum and Fairstead disagree about the Stabilized Deals. A deal is stabilized
if (1) “substantial completion of any construction has been achieved,” (2) “the Deal is
eligible for permanent financing,” and (3) “any construction or stabilization
guarantees provided by any Member of the Company have been released or the
conditions for release of the same have been satisfied” (the “Stabilization Test”).186
186 JX 5280 at 7.
47
Tatum contends that twenty-three deals met the Stabilization Test as of
February 10, 2022 (his last day).187 Fairstead acknowledges only five.188 The
contemporaneous evidence undercuts their lowball count. By November 2021,
Fairstead’s Chief Financial Officer concluded that six deals were Stabilized and that
three deals were “close.”189 Tatum proved that his twenty-three deals met the
Stabilization Test. Fairstead’s challenges to eighteen of those deals fall short.
(i) Substantial Completion of Construction
Fairstead argues that two deals failed the construction prong of the
Stabilization Test. The issuance of a Certificate of Substantial Completion of
Construction indicates when construction is substantially complete.190
Fairstead claims the Clifton deal did not achieve substantial completion, even
though its Certificate issued on December 31, 2021.191 They observe that the
Certificate identified outstanding work obligations to be completed within a specified
187 In addition to the five deals Fairstead identified, Tatum believes the
following eighteen deals are Stabilized: Clifton, Colony, Euclid Hill, Federation
Davie, Federation Gardens, Federation Gould, Federation Sunrise, Federation
Towers, Federation Towers Land, Federation Weinberg, Festival Field, Findlay,
Forest & Village, Foresthill, Franklin Square, Owls Nest, St. Martins, and Woodland.
188 Fairstead believes the following deals are Stabilized: Berkley, Echo Valley,
Heritage Acres, Hope Village, and St. Marks.
189 JX 909 (at Column D).
190 Hale Dep. 228–29.
191 JX 5211.
48
period of time.192 After that work was done, the lender on the deal asked that the
Certificate be reissued.193 According to Fairstead, that means construction on the
Clifton deal was not substantially complete despite the issuance of the Certificate.
Fairstead’s position is unpersuasive. Construction must be substantially
complete, not entirely complete. Having some additional work to do comports with the
definition. The lender asked for an updated certificate to confirm that the additional
work was completed, not because the original certificate was issued incorrectly. 194
Fairstead booked the developer fee-revenue consistent with a December 31, 2021
substantial completion date. The Clifton deal met the substantial completion test.
Fairstead also claims that the Federation Weinberg deal did not satisfy the
substantial completion prong. Fairstead closed on the property in 2021, and the
remaining work consisted of six limited repairs—such as replacing bathroom sinks
and resurfacing countertops—scheduled to take approximately four weeks.195
Fairstead represented to HUD that this work did not constitute construction but
rather fell under “capital repairs.”196 Both Tatum and Kreinik testified consistently
192 Id.
193 JX 5213.
194 Id.
195 See JX 1780; JX 1684 at ’013.
196 See JX 5217 at ’001.
49
that the scope of remaining work was modest and in line with routine post-acquisition
obligations.197 The Federation Weinberg deal met the substantial completion test.
(ii) Eligibility For Permanent Financing
Fairstead argues that seven deals failed the permanent financing prong of the
Stabilization Test.198 Tatum proved that each satisfied that element at the tax-credit
closing. At that point, the loans on each project were long-term, fixed-rate, amortizing
obligations consistent with the industry-standard definition of permanent financing.
Fairstead’s own closing summaries referred to the loans as “permanent.”199
Fairstead’s internal trackers reported that there was “no construction loan” on those
deals.200 Fairstead’s models labeled the debt as “Permanent Financing,” and third-
party underwriters, lenders, and limited partners all described the loans using the
same term.201 Kreinik and Tatum testified persuasively that the debt was permanent
financing.202
197 See Tatum Tr. 217–18; Kreinik Tr. 1327–30.
198 The seven deals are Federation Davie, Federation Gardens, Federation
Gould, Federation Towers and Land, Federation Weinberg, Foresthill, and Clifton.
199 See, e.g., JX 5019 at ’004; JX 5020 at ’004; JX 5047 at ’004.
200 See JX 589 at ’003.
201 See, e.g., JX 5325 at H153; JX 5057 at ’012–019; JX 5015 at ’006–022; JX
5045 at ’006–016; JX 5050 at ’017–027.
202 See Kreinik Tr. 1307–25; Tatum Tr. 221–24.
50
Fairstead argues that the parties intended to adopt a bespoke definition of
“permanent financing” that required not only a permanent loan in place, but also the
elimination of all construction and stabilization obligations. That interpretation
appears nowhere in the agreement, and Fairstead’s own internal documents
contradict it. Fairstead’s primary witness on that point conceded at trial that he
crafted the definition for litigation.203
(iii) Release of Guarantees
Fairstead argues that fourteen deals failed the guarantee prong of the
Stabilization Test.204 They argue that Feldman and Goldberg had given personal
guarantees that remained in place. The Operating Agreement, however, only
considers guarantees from a “Member” of Fairstead Affordable—defined as JD2
Affordable, JCT Capital, or FCM Affordable. Tatum proved that there were no
member guarantees on any of the properties.
Fairstead argues that the guarantee prong must extend beyond Members to
affiliates of Members, thereby encompassing Feldman and Goldberg. That could
make sense as a business matter, but it finds no support in the contractual text. The
term “Member of the Company” excludes Feldman and Goldberg in their individual
capacities. Fairstead does not argue the text is ambiguous, and it offers no alternative
203 See Hale Tr. 1286–87.
204 The fourteen deals are Franklin Square, Findlay, Colony, Festival Field,
Owls Nest, Euclid Hill, Federation Towers and Land, Clifton, Federation Gardens,
Federation Sunrise, Forest Village, Forest Hill, St. Martins, and Woodland.
51
reading. In another section of the Operating Agreement, the parties referred
expressly to “Members or related persons,” confirming that they knew how to include
affiliates when they intended to. They chose not to do so in the Stabilized definition.
Fairstead attempts to work around the plain language by pointing to Section
3.2(b), which contemplates that JD2 Affordable would ensure that “its direct or
indirect principals” would provide guarantees if necessary. The Stabilization Test,
however, does not pick up that provision. Feldman and Goldberg—the indirect
principals—retained full control over how any guarantees would be issued. They
could have given personal guarantees and had JD2 Affordable issue a guarantee in
addition to theirs, or they could have guaranteed the guarantee from JD2 Affordable.
They chose not to structure their affairs in a way that would prevent the Stabilization
Test from being met.
This case presents the same type of interpretive issue as the Aearo
Technologies case.205 There, a wholly owned subsidiary secured insurance that
required the “Named Insured” to satisfy a retention before the insurer would provide
coverage. The parent paid the retention, rather than the subsidiary paying it. The
insurer denied coverage, contending that the policy defined the Named Insured as
the subsidiary, not the parent.206 The Delaware Supreme Court agreed with the
insurer, rejecting the argument that as a matter of economic substance, the economic
205 See In re Aearo Techs. LLC, 2025 WL 2312921 (Del. Aug. 12, 2025).
206 Id. at *1.
52
enterprise that obtained the insurance incurred the retention before seeking
coverage. The justices explained that “[t]he policies unambiguously required certain
Aearo entities to satisfy each [retention and] specifically identified which entities in
the corporate hierarchy could satisfy the [retention].”207
So too here. As in Aearo Technologies, the Operating Agreement
unambiguously specified which guarantees mattered for the Stabilization Test,
namely only those from a “Member of the Company.”
Fairstead points to extrinsic evidence to support its argument that guarantees
from Feldman and Goldberg should count, but the contract is clear. The parties could
have structured their affairs differently but chose not to.208 That was a business
decision, not a basis to rewrite the agreement’s definition of “guarantee.”
Finally, Fairstead cites Tatum’s original complaint, which framed the concept
of “Member Guarantees” more broadly. Tatum credibly explained that he
misunderstood the legal standard before obtaining discovery in this case. Once he
reviewed the actual agreements, it was clear that none of the Members remained
obligated on the disputed deals.209 An early characterization, corrected during
litigation, cannot override the plain meaning of the contract. Tatum proved that the
fourteen deals met the guarantee prong.
207 Id. at *15.
208 See Tatum Tr. 465–66; JX 337 at ’002; Hale Tr. 1288.
209 See Tatum Tr. 455–57, 462–63.
53
ii. The Value Of The Stabilized Deals
The next question is the value of Tatum’s 5.25% interest in the Stabilized
Deals. Tatum proved that he is entitled to $7,864,949.210
Tatum relied on Andrew Lines and Dharminder Kalsi of CohnReznick. Lines
is an experienced real estate appraiser specializing in Low-Income Housing Tax
Credit (“LIHTC”) properties, and he appraised the value of each project. 211 Kalsi is
an expert in valuing interests in tax-credit partnerships, and he used Lines’s project-
level cash flow forecasts and the waterfall provisions in the operating agreements to
determine the present value of Fairstead’s interest in each deal. He then multiplied
that result by 5.25% to calculate the value of Tatum’s interest.212
Fairstead’s internal documents corroborate CohnReznick’s work. In March
2022, Fairstead’s Chief Financial Officer submitted a schedule to Signature Bank
showing estimated fair market values for the same properties that were, on average,
12% higher than CohnReznick’s valuations.213 Fairstead’s LTIP Model, which
Goldberg used for compensation decisions, used methodologies and generated
outcomes that were materially consistent with CohnReznick’s valuations.214
210 JX 5261 at ’043.
211 Lines Tr. 504–07, 510; JX 5261 at ’294–825; JX 5261 at ’300.
212 Kalsi Tr. 600–01, 611–12; JX 5261 at ’047–293.
213 See JX 1074 at ’006; compare JX 5261 at ’300.
214 JX 1158; JX 5261 at ’040.
54
Fairstead’s rebuttal expert, Mark Dunec, did not appraise the properties
himself and lacked comparable experience with LIHTC partnerships. 215 At his
deposition, he did not recall what a Housing Assistance Payment (“HAP”) contract
was, despite those contracts being central to the income and risk profile of these
projects.216 Lines explained that all the LIHTC properties had HAP contracts, which
provided stable, government-backed income streams and justified his use of market-
rate capitalization rates.217
Dunec’s criticisms of Lines’s appraisals were often unsupported. For example,
he assigned Federation Towers Land a value of zero, claiming it was merely a leased
parking lot, but ignoring that the lease was terminable and the land had significant
redevelopment value.218 He similarly valued Federation Weinberg at only $100,000,
even though it was a fully occupied apartment building producing substantial rent.219
Dunec also applied a significant additional discount for lack of marketability
at the level of Tatum’s ownership, a choice that accounts for the majority of the
valuation gap between the experts. That approach was inconsistent with Tatum’s
contractual right to receive ongoing distributions from the deals—not merely to sell
215 Dunec Tr. 1378–81, 1385.
216 Dunec Tr. 1387–89.
217 Lines Tr. 517–20, 552–54.
218 Lines Tr. 543–46; Kreinik Tr. 1326–27; JX 5019 at ’286 §§ 2.3, 3.2.
219 Lines Tr. 546–49; JX 5261 at ’396; JX 2146 at ’053–054.
55
his interest.220 Kalsi properly applied a 28% aggregate discount for lack of control and
lack of marketability at the Fairstead level, without applying any additional
marketability discount at the level of Tatum’s ownership, precisely because Tatum
was entitled to an undiscounted income stream.221 CohnReznick’s analysis properly
values the cash flows Fairstead converted.
iii. Tatum’s Argument For Vested Deals
Tatum finally argues that the court should use its equitable discretion to also
award him the value of all Vested Deals. Tatum is only entitled to expectation
damages for breach of the Vested Interest Provision, and that means only his share
of the value of Stabilized Deals.
To claim a right to Vested Deals, Tatum contends that Feldman and Goldberg
misled him by making false promises about a broader restructuring, only to secretly
abandon that effort, fabricate accusations of misconduct, and frustrate his efforts to
resign. Tatum maintains that had he known the truth, he would have resigned “for
Good Reason” and possessed a right to the value of Vested Deals.
Just as Fairstead cannot retroactively recharacterize Tatum’s resignation as a
termination for cause, Tatum cannot retroactively recharacterize his resignation as
a resignation for Good Reason. Tatum resigned “without Good Reason” in October
220 Kalsi Tr. 649; JX 5280 § 8.8(b); Goldberg Dep. 1005, 1038.
221 Kalsi Tr. 612–13, 648–53, 649; Goldberg Dep. 1038, 1121.
56
2021.222 He reaffirmed his resignation without Good Reason in March and April
2022.223 Tatum claims he did not know about Fairstead’s misrepresentations, but
Tatum was deeply skeptical of Feldman and Goldberg by March 2021. Certainly by
October 2021, when Blodgett was terminated for cause, Tatum already knew enough
to resign for Good Reason. He made a different decision and must stand by it.
2. Tatum’s Claim For Breach Of The Appraisal Provision
Tatum next contends that Fairstead breached a provision in the Operating
Agreement that established a mechanism for appraising his interests (the “Appraisal
Provision”). Tatum proved that claim and is entitled to damages.
a. Breach Of The Appraisal Provision
The Appraisal Provision states:
Upon any termination of Employment of, or by, Tatum, any Member
other than [Tatum] (the “Purchasing Member”) may, or may cause its
designee to, purchase from [Tatum] all of the Interests then held by
[Tatum] for a purchase price equal to the Appraised Value (as defined
below) of such Interests as of the date on which the notice of such
election is sent to JCT.224
The Appraisal Provision establishes a mechanism under which Tatum and the
Purchasing Member each designate appraisers.225
222 JX 1016.
223 JX 1071; JX 1093.
224 JX 5280 § 8.9(a).
225 Id. § 8.9(b).
57
On April 5, 2022, Fairstead exercised its rights under the Appraisal
Provision.226 Each side provided a list of Stabilized Deals.227 Each side designated its
appraiser.228 But Fairstead did not respond to Tatum’s requests for valuation
documents or meet other contractual deadlines.229 Instead, Fairstead made a lowball
settlement offer that Tatum rejected. Fairstead breached the Appraisal Provision by
failing to comply with its terms. Fairstead contends that Tatum did not act in good
faith, but the record does not support that assertion. It was Fairstead who changed
positions on the basis for Tatum’s departure and abandoned the appraisal process.
Tatum is entitled to damages for that breach.
b. The Remedy For Breach Of The Appraisal Provision
A remedy for breach of contract should seek to give the non-breaching party
the benefit of its bargain.230 “In Delaware, the traditional method of computing
damages for a breach of contract claim is to determine the reasonable expectations of
the parties.”231 “This principle of expectation damages is measured by the amount of
226 JX 1090; see Feldman Dep. 499–505.
227 See JX 1090; JX 1093 at ’006.
228 JX 1111; JX 5323.
229 See JX 1134.
230 In re Dura Medic Hldgs., Inc. Consol. Litig., 333 A.3d 227, 255 (Del. Ch.
2025).
231 Cobalt Operating, LLC v. James Crystal Enters., LLC, 2007 WL 2142926,
at *29 (Del. Ch. July 20, 2007), aff’d, 945 A.2d 594 (Del. 2008) (TABLE).
58
money that would put the promisee in the same position as if the promisor had
performed the contract.”232
The Appraisal Provision provides that Tatum and Fairstead “shall pay, on a
pro rata basis (according to their relative Membership Interests), the fees and
expenses of the appraisers.”233 Fairstead formally elected its repurchase rights and
was therefore obligated to pay 94.75% of the “fees and expenses of the appraisers.”
Tatum incurred costs for an appraiser, and Fairstead never bore its share. Fairstead
therefore owes Tatum 94.75% of $321,000, which equals $304,147.50.234
3. Tatum’s Claim For Breach Of The Good Faith Provision
In his final claim for breach of the Operating Agreement, Tatum contends that
Feldman and Goldberg caused JD2 Affordable and FCM Affordable to breach a
provision requiring that members act in good faith (the “Good Faith Provision”).
Tatum proved a breach and is entitled to damages.
a. Breach Of The Good Faith Provision
The Good Faith Provision states that each member must “act honestly and in
good faith in its dealings with the Company and the other Members.”235 Tatum failed
to prove that Feldman and Goldberg breached the Good Faith Provision by making
232 Duncan v. TheraTx, Inc., 775 A.2d 1019, 1022 (Del. 2001).
233 JX 5280 § 8.9(b).
234 CohnReznick billed Tatum an additional $168,299 for depositions and trial
related work. The court declines to award that fee.
235 JX 5280 § 6.10(b).
59
promises about an equity restructuring, but he proved that Feldman and Goldberg
breached by making Tatum run the gauntlet during his departure.
i. A Contractual Obligation Versus A Fiduciary Duty
Some Delaware authorities have collapsed the difference between a
contractual obligation and a fiduciary duty by asserting that “a contractual duty to
refrain from ‘willful misconduct’ or ‘bad faith’ corresponds with the traditional duty
of loyalty.”236 That is not accurate. When an alternative entity eliminates fiduciary
duties, it has eliminated fiduciary duties. It may replace those duties with a
contractual provision that uses a comparable term, but the resulting obligation is
contractual, not fiduciary. 237 Even if the court imbues the contractual obligation with
substantive content by looking to the content of a comparable fiduciary obligation,
236 In re Cadira Gp. Hldgs., LLC Litig., 2021 WL 2912479, at *11 (Del. Ch. July
12, 2021); see Smith v. Scott, 2021 WL 1592463, at *10 (Del. Ch. Apr. 23, 2021)
(asserting that contractual language prohibiting “bad faith,” “willful misconduct,”
and “gross negligence” re-establishes the traditional fiduciary duties of loyalty and
care). The Cadira decision cites CMS Investment Holdings, LLC v. Castle, 2015 WL
3894021 (Del. Ch. June 23, 2015), to support equating contractual duties with
fiduciary duties, but CMS involved an LLC that had not eliminated traditional
fiduciary duties, so the traditional duties applied. Id. at *18.
237 Allen v. El Paso Pipeline GP Co., L.L.C., 113 A.3d 167, 194 (Del. Ch. 2014)
(“A provision of a limited partnership agreement might turn on a particular state of
mind, but the inclusion of requisite mental state for compliance with a provision is
not the same as creating a fiduciary relationship or re-introducing fiduciary duties
that have been eliminated.”), aff’d, 2015 WL 803053 (Del. Feb. 26, 2015) (TABLE); In
re El Paso Pipeline P’rs, L.P. Deriv. Litig., 2014 WL 2768782, at *21 (Del. Ch. June
12, 2014) (“When an alternative entity eliminates all fiduciary duties, then all
fiduciary duties have been eliminated,” even if “the alternative entity agreement
might well include a contractual duty to disclose”).
60
the obligation remains contractual. For example, a contractual provision might state
that a manager must use due care. A court could look to fiduciary law to hold that the
standard for measuring a failure to use due care is gross negligence.238 But the
plaintiff must still prove a claim for breach of contract; fiduciary concepts like
standards of review do not apply.239
The Operating Agreement provides that “JCT shall owe fiduciary duties to the
Company and the other Members” but eliminates fiduciary duties for the other
members.240 Feldman and Goldberg’s obligations are purely contractual. The
Operating Agreement introduces a contractual requirement that each member must
act in “good faith,” without any qualifier and without defining “good faith.” The court
can look to fiduciary law to draw content for this contractual obligation, but the
obligation remains contractual.
“When a contract governed by Delaware law calls upon a party to act or make
a determination in good faith, without any qualifier, it means that the party must act
238 See also, e.g., CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *16
(Del. Ch. Jan. 31, 2017) (where LLC agreement eliminated fiduciary duties but
imposed liability for bad faith actions and improper self-dealing, “[t]hose duties are
contractual in nature, but to the extent they employ undefined terms such as ‘bad
faith,’ the common law fiduciary duties are instructive in supplying the definition”).
239 El Paso Pipeline P’rs, 2014 WL 2768782, at *19 (“Because the LP Agreement
eliminates all fiduciary duties, the fiduciary duty precedents do not control.”).
240 JX 5280 § 6.10(a).
61
in subjective good faith.”241 For example, a limited partnership agreement that
eliminates fiduciary duties and introduces a contractual obligation to act in good faith
imposes a subjective standard.242 The court cannot read minds, so it must infer an
individual’s subjective intent to act in good faith from external indications.243
In the fiduciary context, good faith requires a partner in a limited partnership
to act honestly and subjectively seek to promote the best interests of the partnership.
Stated in the contrapositive, a partner acts in bad faith when acting dishonestly or
with a purpose other than advancing the best interests of the partnership.244 These
principles apply equally to a contractual obligation that requires members of an LLC
to act in good faith.
ii. The Allegedly False Promise Of Equity
Tatum contends that Feldman and Goldberg breached the Good Faith
Provision by making a false promise about an equity restructuring that induced
Tatum to stay at Fairstead Affordable while preserving their own equity stakes. To
241 Fox v. CDX Hldgs., Inc., 2015 WL 4571398, at *25 (Del. Ch. July 28, 2015),
aff’d, 141 A.3d 1037 (Del. 2016).
242 E.g., Allen v. Encore Energy P’rs, L.P., 72 A.3d 93, 104–06 (Del. 2013); El
Paso Pipeline GP, 113 A.3d at 174, 178.
243 El Paso Pipeline GP, 113 A.3d at 178.
244 Leo Invs. Hong Kong Ltd. v. Tomales Bay Cap. Anduril III, L.P., 342 A.3d
1166, 1195 (Del. Ch. 2025).
62
act in good faith, Feldman and Goldberg were required to act honestly and seek to
promote the best interests of Fairstead Affordable and its members as a whole.
The factual record shows that Goldberg did not breach that obligation when
discussing equity with Tatum. He did promise Tatum equity, but he said that an
equity restructuring would not happen until 2021. Tatum and Blodgett preempted
the timeline by choosing to seek an earlier equity restructuring. Nothing prohibited
them from asking for an acceleration of the timeline. But their ask does not change
the fact that Goldberg promised an equity restructuring in 2021.
Consistent with his promise, Goldberg began implementing the LTIP in
January 2021. The LTIP was not the handover of equity and control that Tatum and
Blodgett wanted, but it contemplated awards of equity. Tatum failed to prove that
the promise about an equity restructuring breached the Good Faith Provision.
iii. The Departure Gauntlet
Tatum separately argues that Feldman and Goldberg breached the Good Faith
Provision by making his departure as lengthy, painful, and costly as possible. The
record supports Tatum’s claim. To act in good faith, Feldman and Goldberg were
required to act honestly and seek to promote the best interests of Fairstead
Affordable. Instead, Feldman and Goldberg maneuvered opportunistically and
sought to harm Tatum, even if it would not benefit Fairstead Affordable.
When Fairstead exercised its right to repurchase Tatum’s equity interests,
Feldman and Goldberg did not respond to Tatum’s requests for valuation documents.
They did not meet other contractual deadlines. Instead of following the valuation
63
process under the Operating Agreement, they conveyed a lowball buyout offer. These
tactics did not promote the best interests of Fairstead Affordable and its members. It
was an intentional breach of the Operating Agreement that put Fairstead Affordable
at risk.
After Tatum rejected the buyout offer, Feldman and Goldberg purported to
retroactively assign cause to Tatum’s termination and declared that Tatum’s equity
interests were forfeited. They grounded the retroactive for-cause termination on
Tatum and Blodgett’s plan to leave Fairstead and start a new company. That was not
a good faith act. Feldman and Goldberg knew the relevant details about Tatum and
Blodgett’s plans when they accepted Tatum’s resignation. Goldberg admitted that
Fairstead only decided to take this hardline position after Tatum declined the offer.
When recharacterizing Tatum’s termination, Feldman and Goldberg sought to
manufacture a dishonest reason to harm Tatum, not to act honestly and in the best
interests of Fairstead Affordable.
Tatum proved that Feldman and Goldberg breached their contractual
obligation to act in good faith by making him run the departure gauntlet. He is
entitled to a remedy.
b. The Remedy For Breach Of The Good Faith Provision
Tatum can recover damages for Feldman and Goldberg’s breach of the Good
Faith Provision. The court has “broad latitude to exercise its equitable powers to craft
64
a remedy.”245 The American Rule generally prevents a party from recovering fees and
expenses as damages, but there are exceptions to the general rule.246 The court has
discretion to award attorneys’ fees as damages in certain circumstances.247 The bad
faith exception permits the recovery of attorneys’ fees as damages if the underlying,
pre-litigation conduct of the losing party was sufficiently egregious.248 The record
shows that Feldman and Goldberg acted in bad faith during Tatum’s departure from
Fairstead. Tatum is entitled to an award of attorneys’ fees for the amounts he
incurred litigating the Good Faith Provision claim. If the parties cannot agree on an
amount, Tatum may move to quantify the fee award.
B. Tatum’s Claim For The Legacy Portfolio
Tatum contends that Fairstead owes him a share of the promote for the Legacy
Portfolio under principles of promissory estoppel. He proved that claim and is entitled
to damages.
The parties agree that New York law governs this claim. Under New York law,
promissory estoppel has three elements: “a clear and unambiguous promise; a
245 Hogg v. Walker, 622 A.2d 648, 654 (Del. 1993); accord Berger v. Pubco Corp.,
976 A.2d 132, 139 (Del. 2009); Reserves Dev. LLC v. Severn Sav. Bank, FSB, 961 A.2d
521, 525 (Del. 2008).
246 Goldenberg v. Immunomedics, Inc., 2021 WL 1529806, at *19 (Del. Ch. Apr.
19, 2021).
247 Nevins v. Bryan, 885 A.2d 233, 255 (Del. Ch. 2005), aff’d, 884 A.2d 512 (Del.
2005).
248 Goldenberg, 2021 WL 1529806, at *19.
65
reasonable and foreseeable reliance by the party to whom the promise is made; and
an injury sustained by the party asserting the estoppel by reason of the reliance.”249
Tatum proved each element.
First, Tatum proved that Goldberg unambiguously promised Tatum a share of
the promote for the Legacy Portfolio. Tatum and Blodgett testified credibly, and a
contemporaneous document provides corroboration.250 That model calculated
Tatum’s 5.25% interest in the promote as $1,077,140.81.251
Second, Tatum reasonably and foreseeably relied on Goldberg’s promise.
Tatum did not want to work on the Legacy Portfolio. He did so only because Goldberg
promised him a share of the promote.
Third, Tatum was injured. He worked on the Legacy Portfolio without any
compensation. Otherwise, he would have worked on Fairstead Affordable deals for
which he stood to receive equity.
Fairstead argues that Tatum cannot recover because he was obligated to work
on the Legacy Portfolio under the terms of his Employment Agreement. The operative
provision states:
You are being employed as a real estate director responsible for directing
the acquisition and execution activities of Fairstead Affordable and to
provide all other work and services assigned to you, including, but not
limited to services for [JD2 Realty Management LLC], its direct or
249 Cacchillo v. Insmed, Inc., 551 F. App’x 592, 594 (2d Cir. 2014).
250 Tatum Tr. 89–90; Blodgett Tr. 699–701; see JX 336; JX 339.
251 JX 330 at ’002 (“Summary” sheet, cell D43).
66
indirect, principals, affiliates, parent or subsidiary entities, and any and
all company or companies owned by or related to [JD2 Realty
Management LLC] or its direct or indirect principals (“Related
Entities”).252
That language contemplates work for Fairstead Affordable and its affiliates, but not
for projects wholly unrelated to Fairstead Affordable, like the Legacy Portfolio.
Tatum is entitled to $1,077,140.81 in damages for his share of the promote, equal to
the amount that Fairstead calculated.
C. Tatum’s Claim For The Hampstead Portfolio
Tatum separately contends that Fairstead owes him a share of the promote for
the Hampstead Portfolio under principles of unjust enrichment. He proved that claim
and is entitled to damages.
“To prevail on a claim of unjust enrichment, a plaintiff must prove that the
defendant received a benefit at plaintiff’s expense and that retention of that benefit
would be unjust.”253 Tatum proved both elements of unjust enrichment.
Tatum brokered the acquisition of the Hampstead Portfolio and received a 9%
share of the promote.254 Feldman and Goldberg told Tatum that they wanted to
restructure Fairstead Affordable so that all of his equity compensation would be tied
252 JX 80 § 1(A).
253 Thayer v. Dial Indus. Sales, Inc., 189 F. Supp. 2d 81, 91 (S.D.N.Y. 2002)
(internal quotation marks omitted).
254 JX 174.
67
to that entity. In anticipation of the restructuring, they asked Tatum to transfer his
share of the Hampstead Portfolio promote to Fairstead Affordable. Tatum agreed.
Feldman and Goldberg never increased Tatum’s interest in Fairstead
Affordable to reflect the transfer. He went from having a 100% interest in 9% of the
promote to only having a 5.25% interest in 9% of the promote.
The transfer enriched Feldman and Goldberg because it gave them a 94.75%
interest in an asset—the 9% interest in the promote—where they previously had zero
interest. Tatum was impoverished by the same amount. Feldman and Goldberg
promised that they would account for the transfer of the 9% interest as part of the
overall equity restructuring, but that never happened. Their retention of these
benefits would be unjust. They induced Tatum to roll over his interest in the
Hampstead Portfolio promote to Fairstead Affordable, but he received nothing in
return.
Tatum is entitled to the value of his 5.25% interest in the Hampstead Portfolio
promote. Fairstead’s contemporaneous records valued the Hampstead Portfolio
promote at $9,853,038.255 Tatum is entitled to damages of $517,284.
D. The Counterclaim For Breach Of The Employment Agreement
In its first counterclaim, Fairstead asserts that Tatum breached his
Employment Agreement by secretly partnering with Blodgett to take control of
255 JX 1168 at ’002.
68
Fairstead or launch a competing company, and by downloading, retaining, and using
Fairstead’s confidential information.
The Employment Agreement contains a choice-of-law provision selecting New
York law.256 To prevail on a breach of contract claim under New York law, the
claimant “must establish the existence of a contract, the party’s own performance
under the contract, the other party’s breach of its contractual obligations, and
damages resulting from the breach.”257 “The fundamental, neutral precept of contract
interpretation is that agreements are construed in accord with the parties’ intent.”258
“The best evidence of what parties to a written agreement intend is what they say in
their writing.”259 Thus, “a written agreement that is complete, clear and
unambiguous on its face must be enforced according to the plain meaning of its
terms.”260
The Employment Agreement required that Tatum “devote [his] best efforts and
time, effort and loyalty” to his employer and “discharge all of [his] duties . . . in good
faith” (the “Best Efforts Provision”).261 It also required that Tatum refrain from
256 JX 80 § 4(C).
257 Adirondack Classic Design, Inc. v. Farrell, 122 N.Y.S.3d 790, 793 (App. Div.
2020).
258 Greenfield v. Philles Recs., Inc., 780 N.E.2d 166, 170 (N.Y. 2002).
259 Id. (internal quotation marks omitted).
260 Id.
261 JX 80 § 1(H).
69
“conduct that creates . . . conflict between [his] personal interests and [Fairstead’s]
interests” (the “No Conflict Provision”).262 Finally, the Employment Agreement
required that Tatum “not reveal to any person or entity any of the trade secrets or
proprietary or confidential information of [Fairstead]” (the “Confidentiality
Provision”).263
1. Fairstead’s Claim For Breach Of The Best Efforts Provision
Fairstead contends that Tatum breached the Best Efforts Provision by secretly
partnering with Blodgett to take control of Fairstead or launch a competing company.
Fairstead failed to prove that Tatum breached the Best Efforts Provision.
The Best Efforts Provision states:
As an employee of the Firm, you agree to (a) devote your best efforts and
time, effort and loyalty to the business of the Firm, the Related Entities
and its affiliates; (b) discharge all of your duties and responsibilities that
are or may be assigned to you by the Firm or any Related Entities
conscientiously, in good faith and to the best of your ability, giving the
Firm and the Related Entities the full benefit of your knowledge,
expertise, skill and judgment . . . .264
The Best Efforts Provision required Tatum to devote his “best efforts” to his duties
and responsibilities as a Fairstead employee. It essentially required Tatum to do his
best to advance Fairstead’s business.
262 Id.
263 Id. § 3(A)(1).
264 Id. § 1(H).
70
The record shows that Tatum devoted his best efforts as a Fairstead employee.
Before Tatum joined Fairstead, no one there knew how to do a tax credit deal. He
built a new segment of the business from scratch. When Blodgett and Goldberg asked
Tatum to work on two additional projects, he agreed and devoted his knowledge,
expertise, skill, and judgment to those projects as well. Tatum renovated the Legacy
Portfolio in record time and put together a refinancing to Feldman’s benefit. He
oversaw the acquisition of the Hampstead Portfolio. He also reached out to a
compensation consultant to advise Fairstead. Nothing in the record indicates that
Tatum failed to do his best as a Fairstead employee. He worked hard to build and
manage Fairstead Affordable and the Tax Credit Business and added value for
additional projects.
Tatum’s efforts to develop the plans for Restructured Fairstead and the
Separate Company did not translate into a lack of his best efforts as a Fairstead
employee. Fairstead did not point to any credible evidence suggesting a decline in
Tatum’s productivity as an employee. Tatum continued to do his job and do it well.
Subjectively, Tatum always preferred the option of continuing to work at
Fairstead. He and Blodgett only developed their plan for the Separate Company as a
backup if Feldman and Goldberg refused to restructure Fairstead Affordable. Tatum
did not breach the Best Efforts Provision by making fallback plans to leave as long as
he continued to devote his best efforts to Fairstead Affordable. While Tatum was
discussing options with Blodgett, Tatum continued to do that.
71
Tatum also did not want his departure to harm the company. He promised
Goldberg that he would help Fairstead should things end, and he proposed that they
work together on a transition plan. When Fairstead insisted that Tatum work
through his notice period, Tatum did. He worked diligently for Fairstead until his
last day at the company. He thought he left on good terms. Tatum wanted to continue
working with Fairstead, even in a new venture.
For these reasons, Fairstead failed to prove that Tatum breached his
contractual duties under the Best Efforts Provision.
2. Fairstead’s Claim For Breach Of The No Conflict Provision
Fairstead next contends that Tatum breached the No Conflict Provision.
Fairstead points to the same underlying conduct and contends that Tatum put
himself in conflict with Fairstead by exploring the possibilities of Restructured
Fairstead and the Separate Company. Fairstead again failed to prove a breach.
The No Conflict Provision states:
As an employee of the Firm, you agree to . . . (f) not engage in any conduct
that creates an actual, potential or apparent conflict between your
personal interests and the Firm’s interests or any Related Entities
interests, or which otherwise may adversely affect your judgment or
ability to interact in the best interests of the Firm or any Related
Entities.265
265 Id.
72
Fairstead contends that the No Conflict Provision precluded Tatum from doing
anything to plan to leave the company because his personal interest in leaving the
company conflicted with Fairstead’s desire to have him stay.
If read as broadly as Fairstead seeks, the No Conflict Provision would preclude
a wide range of permissible conduct. An employee could not ask for a raise, because
that request would put the employee’s personal interest (gaining higher
compensation) at odds with the company’s interest (keeping costs lean). An employee
could not ask for additional time off, because doing so would put the employee’s
personal interest (time off) at odds with the company’s interest (having the employee
work as much as possible). And the provision would prevent an employee from doing
anything to look for a new job, even if the employee’s efforts did nothing to harm the
company or interfere with the employee’s duties. Such an interpretation would
constitute a radical restriction on personal freedom. It is hard to imagine public policy
allowing such a restriction, much less a court of equity enforcing it.
The No Conflict Provision does not sweep so broadly. It seeks to address
standard employee conflicts of interest, like contracting with a more expensive
supplier who gives the employee baseball tickets rather than a cheaper supplier who
doesn’t. The restriction does not go further and bar the employee from making
legitimate preparations to compete.
Fairstead failed to prove that Tatum put himself in an actual, potential, or
apparent conflict with Fairstead by working on a potential restructuring or
considering a new venture with Blodgett. As with the analysis of the Best Efforts
73
Provision, Tatum did nothing that harmed Fairstead or impaired his ability to carry
out his duties. Fairstead failed to prove a breach of the No Conflict Provision.
3. Fairstead’s Claim For Breach Of The Confidentiality Provision
Fairstead last contends that Tatum breached the Confidentiality Provision.
Fairstead proved that Tatum breached the provision by downloading and retaining
documents but failed to prove any compensable damages beyond the cost of the
forensic investigation.
a. Breach Of The Confidentiality Provision
Fairstead contends that Tatum breached the Confidentiality Provision by
downloading and retaining documents. He did, and that constituted a breach.
The Confidentiality Provision states:
At all times, both during your employment and after its termination,
you agree that you will not reveal to any person or entity any of the trade
secrets or proprietary or confidential information of the Firm or any
Related Entities or any third party . . . and you shall keep secret all
matters entrusted to you and shall not use or attempt to use any such
information in any manner, except as may be required in the ordinary
course of performing your duties as an employee of the Firm.266
The same provision later states:
While you are an employee of the Firm, you shall not take from the
premises of the Firm or from any of the Related Entities, use or permit
to be used any Proprietary Information other than for the benefit of the
Firm. You shall not, after the termination of your employment with the
Firm, use or permit to be used any Proprietary Information, notes,
memoranda, files, letters, lists, emails, reports, lists, records,
specifications, software programs, data, documentation or other written,
photographic, electronic or other tangible materials containing
Proprietary Information, it being agreed that all of the foregoing will be
266 Id. § 3(A)(1).
74
and remain the sole and exclusive property of the Firm and such Related
Entities and that immediately upon the termination of your employment
with the Firm for any reason, you will deliver all of the foregoing, and
all copies thereof, to the Firm at its main office. After such delivery, you
shall not retain any such records or copies thereof or any such tangible
property.267
Tatum admits that after Blodgett’s meeting with Feldman went poorly, he “panicked”
and downloaded Fairstead documents.268 That act breached the Confidentiality
Provision.
b. The Remedy For Breach Of The Confidentiality Provision
Although Tatum’s downloading breached the Confidentiality Provision,
Fairstead failed to prove any damages other than the costs incurred investigating
Tatum’s actions. The nature of the documents and Tatum’s decision to return them
without using them defeats any more significant award.
Tatum first downloaded a large volume of documents on May 8, 2021. Those
documents related overwhelmingly to diligence materials for deals, with only nine
documents addressing other matters.269 Tatum next downloaded documents on May
18. He accessed a folder that predominantly contained personal documents, but also
contained some Fairstead documents that Tatum kept there so they remained
confidential. Tatum downloaded more documents on June 29, but they were solely
personal documents.
267 Id. § 3(A)(3).
268 Tatum Tr. 137.
269 JX 5260.
75
On January 18, 2022, Tatum returned the USB drive he used. He returned all
of the Fairstead documents except for two categories. The first consisted of valuation
materials relating to Fairstead Affordable and the employee co-investment vehicle,
which Tatum correctly believed he could retain given his status as a member. The
second consisted of photographs of communications about his annual reviews, the
promised restructuring, and his transition efforts, which Tatum kept to defend
himself if litigation ensued.
There is no evidence that Tatum used any of the materials for any purpose
other than this litigation. There is no evidence that Tatum’s retention and use of the
documents harmed Fairstead. At trial, Tatum’s counsel asked the Fairstead
witnesses to identify competitively sensitive documents that Tatum improperly
retains today. They pointed to only a single item: a photograph of the first page of a
document titled “FA Process.”270 That photograph is not significant.
Fairstead also failed to prove that Tatum misused any of the Fairstead
documents that he did not retain. The record at trial showed that much of the
information is publicly available. LIHTC general partners are effectively government
contractors. As a result, LIHTC underwriting models are publicly available.271
Information about Feldman and Goldberg’s net worth is also publicly available. Many
270 JX 1454 at ’009–011.
271 See, e.g., JX 5319; JX 5232; JX 5233; JX 5234; JX 5320; JX 5325; JX 5326;
JX 5327.
76
of the documents Tatum downloaded are curated files of “know-how” that are not
truly confidential.272
The expert testimony does not support the assertion that Tatum used or
disclosed any documents. Tatum’s expert opined that he had not.273 Fairstead’s expert
agreed that the last accessed date for most of the documents was when they were
downloaded onto the USB.274 Fairstead’s expert offered no opinion about whether
Tatum transferred the documents to another device. While it is theoretically possible
that Tatum did this, Tatum credibly denied it, and Fairstead offered no proof.
Fairstead’s contemporaneous actions also evidence the lack of any significance
to the breach. On June 24, 2021, Fairstead learned about Tatum’s downloading
activity.275 On June 30, Fairstead’s principals strategized about how to use that in
the “NewCo” negotiations.276 They did not ask Tatum about his downloading activity,
preferring for “business reasons” to investigate first.277 In August, Fairstead’s outside
272 See Pfizer, Inc. v. ICI Ams., Inc., 1984 WL 8282, at *8 (Del. Ch. Nov. 21,
1984) (information classified as “know-how” is only protectible if the information has
been maintained as confidential, is not generally known by others, and cannot be
readily ascertained through other means).
273 See JX 1016; JX 1358 (downloading analysis); JX 5299 (USB analysis).
274 See JX 5299.
275 JX 614.
276 JX 5339 at ’005 (“Consider whether/how to handle bad behavior (stealing
documents, etc.)”; “Penalty provisions tied to existing equity provisions?”).
277 JX 5106.
77
counsel recommended telling Tatum about the investigation.278 But Feldman and
Goldberg decided against it.279 They finally told Tatum about the investigation on
December 23, but overstated the findings.280 If Tatum’s downloading threatened
Fairstead or caused real harm, Feldman and Goldberg would have acted differently.
Fairstead therefore failed to prove that Tatum’s downloading and retention of
documents caused Fairstead any material harm. But Tatum’s breach did warrant a
forensic investigation, and Fairstead spent $155,384.73 conducting it.281 Tatum must
bear that cost.
E. The Counterclaim For Breach Of The Operating Agreement
In its next counterclaim, Fairstead asserts that Tatum breached two provisions
of the Operating Agreement. Fairstead asserts that Tatum breached the Good Faith
Provision by secretly working with Blodgett to gain control of Fairstead or start a
competing business using Fairstead’s resources, by soliciting other Fairstead
employees to leave the company and join his new venture with Blodgett, and by
misappropriating Fairstead’s confidential information. Fairstead also asserts that
Tatum breached the confidentiality provision in the Operating Agreement by
278 See JX 5104; JX 5106.
279 See JX 851; JX 919.
280 JX 978.
281 JX 5265 at ’036–038.
78
downloading and retaining Fairstead’s confidential information. Fairstead failed to
prove that Tatum breached either provision.
1. Fairstead’s Claim For Breach Of The Good Faith Provision
To act in good faith, Tatum was required to seek to promote the best interests
of Fairstead Affordable and its members. Fairstead failed to prove that Tatum
breached that contractual obligation.
a. Restructured Fairstead And The Separate Company
Fairstead contends that Tatum and Blodgett used “fearmongering” and
“threats” to attempt a “hostile takeover,” and if that failed, they planned to launch a
competing business. Tatum did not attempt a “hostile takeover” of Fairstead. Tatum’s
written proposals show what he hoped to accomplish. “Plan A” was an equity
restructuring resulting in Restructured Fairstead. “Plan B” was to start a new
Separate Company with Blodgett. He wanted to continue working with Fairstead,
even in the new venture. Fairstead failed to prove that Tatum breached the Good
Faith Provision by exploring “Plan A” and “Plan B.”
Tatum did not act dishonestly or in bad faith when exploring “Plan A” and
“Plan B.” His main contribution was to prepare some documents to help Blodgett
raise funds.282 He also scheduled a meeting with the Tisch Office using his Fairstead
email account and with assistance from Blodgett’s executive assistant.283 Those
282 JX 530.
283 See JX 295; JX 297.
79
efforts, however, were about a potential restructuring that Goldberg had encouraged
Blodgett to explore.284 Although Goldberg disclaimed being involved at trial, the
contemporaneous record shows that he knew about and supported Blodgett’s efforts
to develop a restructuring that might be acceptable to Feldman, including by bringing
in capital from the Sussman and Tisch Offices.285 Those initiatives were consistent
with Goldberg’s own suggestion to consider bringing in “third party capital.”286 None
of Tatum’s efforts harmed the interests of Fairstead Affordable and its members.
Tatum also did not actually start a competing company. In spring 2021, Tatum
and Blodgett discussed leaving Fairstead. After Feldman rejected Blodgett’s proposal
on June 2, 2021, Tatum and Blodgett discussed working together once any non-
compete periods expired. But Tatum never joined Blodgett’s new venture. Tatum did
not breach his contractual obligation to act in good faith toward Fairstead Affordable
and its members by exploring the possibility of a separate company.
Fairstead observes that in September 2021, Tatum met with a potential
investor.287 That meeting was not a violation of the Good Faith Provision either. At
the time, Tatum and Blodgett believed they were on the verge of reaching agreement
on a joint venture with Feldman and Goldberg.
284 Tatum Tr. 48, 273–92.
285 See Tatum Tr. 99–103, 289; Blodgett Tr. 720–22.
286 JX 337 at ’003.
287 Tatum Tr. 428–30; JX 2129.
80
Even after Tatum resigned, he took steps to ensure that his departure would
not harm the company. He developed a transition plan with Goldberg and
implemented it.288
Fairstead failed to prove that Tatum’s actions breached the Good Faith
Provision.
b. The Alleged Solicitation Of Fairstead Employees
Fairstead next contends that Tatum breached the Good Faith Provision by
inducing Kreinik and Sussi to leave. To the contrary, Tatum tried to warn Goldberg
that employees were unhappy and on the verge of leaving.289
Kreinik joined Fairstead “at the word of Jeff Goldberg,” who said that Kreinik
would be given equity as a part of his compensation. Years later, by the time of
Kreinik’s resignation, Kreinik had been promised “significant equity” “multiple
times” and these promises “weren’t delivered.”290 Kreinik resigned because these
promises remained unfulfilled and “it didn’t seem like there was a path forward.” 291
288 See JX 750; JX 5308; Tatum Tr. 171–84.
289 See JX 154 (Tatum asking Goldberg if he wants “partners” or “employees”
and that Goldberg should adopt the partner model because “[i]t’s market and if people
don’t get it here, the best ones will leave.”).
290 Kreinik Tr. 1299–301; see JX 398 at ’002 (Kreinik on March 31, 2021:
“Trying to figure out how underpaid I am”).
291 Kreinik Tr. 1303.
81
Kreinik had “wanted to resign for quite some time” but held off to ensure a smooth
transition.292
Sussi’s experience was similar. Goldberg told Sussi that he would receive
equity compensation,293 and Sussi felt that he was unfairly compensated.294 He left
because he felt Goldberg did not fulfill his promises.
Fairstead did not prove that Tatum caused Kreinik or Sussi to leave Fairstead.
The evidence showed instead that Feldman and Goldberg caused their own employees
to leave by failing to give them equity compensation and treating them poorly. Since
2022, every Fairstead executive has left, except for Feldman, Goldberg, and Hoffman.
The departures include Tatum’s two successors as the head of acquisitions and
development, two Chief Financial Officers, and the leaders of Construction, Capital
Markets, Property Management, Marketing, and Human Resources.295
To prove a breach of contract, a plaintiff must prove that the breach caused
compensable harm. Fairstead failed to prove a breach. Fairstead also failed to prove
causation. Kreinik and Sussi were going to leave no matter what Tatum did.
292 JX 755.
293 Tatum Tr. 117.
294 JX 478 (Sussi on May 22, 2021: “We’re like the pop star that[] gets pilfered
by their manager”); Blodgett Tr. 693–94.
295 Feldman Tr. 1194–97.
82
Fairstead failed to prove that Tatum breached the Good Faith Provision by
soliciting Fairstead employees.
c. The Alleged Misappropriation Of Confidential
Information
Fairstead failed to prove that Tatum breached the Good Faith Provision by
misappropriating confidential information. Because the Confidentiality Provision in
the Employment Agreement directly addresses this topic, this decision has used that
provision to analyze Tatum’s downloading of information. As discussed in that
context, Tatum downloaded and retained documents, but he did not misuse any of
the information. Fairstead also failed to prove that Tatum used or disclosed any of
the confidential information that Blodgett and Kreinik separately downloaded. The
Good Faith Provision did not impose any obligations beyond the obligations that the
Confidentiality Provision imposed. At best, assuming breach, Fairstead would be
entitled to the expenses it incurred investigating Tatum’s actions, which this decision
has already awarded. No further relief is warranted.
2. Fairstead’s Claim For Breach Of The Confidentiality Provision
Fairstead separately asserts a breach of a more general confidentiality
provision that appears in the Operating Agreement. That provision states, subject to
exceptions, that “no Member or any of its affiliates shall disclose or use any
confidential information of or with respect to the Company or its business.”296
296 JX 5280 § 8.3(b). The exceptions permit use of confidential information “(i)
to the extent that it legally is or becomes part of public or industry knowledge from
authorized sources other than a Member or any Affiliate of any Member, (ii) which
83
This decision previously used the Confidentiality Provision in the Employment
Agreement to analyze Tatum’s conduct. The provision in the Operating Agreement is
more general and requires that a party “disclose or use” confidential information. As
discussed, that did not happen. Fairstead did not prove any breach of the general
confidentiality obligation in the Operating Agreement.
F. The Counterclaim For Tortious Interference
In a final contract-related claim, Fairstead sought to prove that Tatum
tortiously interfered with Kreinik’s employment agreement. Fairstead failed to prove
this claim.
Delaware follows the Restatement (Second) of Torts when analyzing a claim
for tortious interference with contract.297 Generally, “[o]ne who intentionally and
improperly interferes with the performance of a contract . . . between another and a
third person by inducing or otherwise causing the third person not to perform the
contract, is subject to liability to the other.”298 Reframed as elements, a plaintiff must
plead: (1) a contract, (2) the defendant’s knowledge of it, and (3) an intentional act
that is a significant factor in causing a breach of the contract, (4) done without
the Member or any of its Affiliates is required by law to disclose (but only to the extent
required to be so disclosed), or (iii) in case of any use by the Members, such use is
necessary or appropriate in the conduct of the Company’s business.” Id.
297 WaveDivision Hldgs., LLC v. Highland Cap. Mgmt., L.P., 49 A.3d 1168,
1174 (Del. 2012); ASDI, Inc. v. Beard Rsch., Inc., 11 A.3d 749, 751 (Del. 2010).
298 Restatement (Second) of Torts § 766 (A.L.I. 1979).
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justification, (5) that causes injury.299 Without an underlying breach of contract, a
tortious interference claim is not viable.300
The intentional act causing the breach need not be tortious, only intentional.301
An independently tortious method of interference makes a finding of improper
interference more likely, so “the nature of [the] conduct is an important factor,” but a
tortious method of interference is not required.302
Fairstead contends that Kreinik breached his employment agreement in two
ways. First, Fairstead contends that Kreinik competed with the company by working
on Restructured Fairstead. Second, Fairstead contends that Kreinik used its
confidential information when preparing financial models for Restructured
Fairstead. Fairstead contends that Tatum caused Kreinik to breach his employment
agreement by directing and supervising Kreinik’s work on Restructured Fairstead.
The first two elements of the tortious interference claim are easily satisfied.
The contract was Kreinik’s employment agreement,303 and Tatum knew it existed.304
299 Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453 (Del. 2013).
300 See STX Bus. Sols., LLC v. Fin.-Info.-Techs., LLC, 2024 WL 4645104, at *6
(Del. Ch. Oct. 31, 2024), aff’d, 342 A.3d 399 (Del. 2025) (TABLE).
301 Bandera Master Fund LP v. Boardwalk Pipeline P’rs, LP, 2024 WL 4115729,
at *38 (Del. Ch. Sept. 9, 2024); Restatement (Second) of Torts, supra, § 766 cmt. c.
302 Restatement (Second) of Torts, supra, § 766 cmt. c.
303 JX 62.
304 E.g., Tatum Tr. 417; JX 641.
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But Fairstead failed to prove that Tatum engaged in any intentional acts that were
a significant factor in causing a breach of the competition or confidentiality
restrictions in Kreinik’s employment agreement.
1. Kreinik’s Alleged Breach Of The Competition Restriction
Fairstead contends that Tatum induced Kreinik to breach the competition
restriction in his employment agreement by working on Restructured Fairstead. The
non-solicitation provision in Kreinik’s employment agreement contains language that
prohibits him from “work[ing] for, [or] provid[ing] services to . . . a Restricted Entity.”
The agreement defines a “Restricted Entity” as
any entity, sole proprietorship, partnership, limited liability company,
corporation, joint venture, or individual (collectively, an “Entity”) that
is in the business of purchasing real estate and one or more persons that
worked at a Related Entities in the twelve months prior to your
cessation of employment with the Company, are employed by,
compensated by, or provide services to the Entity at the time you seek
to join the Entity.305
Kreinik was bound by this restriction during his employment and for a year after his
employment ceased. The restriction did not prohibit Kreinik from working on plans
for a potential business.
Restructured Fairstead was not a competing business. It was a proposal for a
restructured business. Blodgett pitched it to Feldman.306 The Separate Company
would have been a competing business, but in the spring and summer of 2021, the
305 JX 62 § 3(C).
306 JX 808 at ’004; see JX 480 at ’002.
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Separate Company was only an idea. In any event, Blodgett, not Tatum, instructed
Kreinik to start working on plans for the Separate Company.307
Kreinik joined Tredway, Blodgett’s new affordable housing business, in late
2021. Kreinik’s employment agreement prohibited him from working at Tredway. But
the record does not show that Tatum had any role in Kreinik joining Tredway. Tatum
did not join Tredway himself.
Fairstead failed to prove that Tatum engaged in any intentional acts inducing
Kreinik to breach the competition restriction in his employment agreement.
2. Kreinik’s Alleged Breach Of The Confidentiality Restriction
Kreinik’s employment agreement also prohibited him from “us[ing] or
attempt[ing] to use any [confidential] information in any manner,” except on work for
Fairstead.308 Fairstead contends that Krenik breached this provision by downloading
Fairstead’s confidential information and using it in modeling for Restructured
Fairstead. Fairstead contends that Tatum directed Kreinik’s work on the
Restructured Fairstead model.
Kreinik downloaded Fairstead files to a USB drive,309 but Tatum never
coordinated or discussed downloading Fairstead files with Kreinik.310 That leaves the
307 Arb. Decision at 20; JX 437.
308 JX 62 § 3(A)(1).
309 See JX 5260.
310 Kreinik Tr. 1333.
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possibility that Tatum directed Kreinik to use Fairstead’s confidential information
for modeling of Restructured Fairstead or the Separate Company. There is no
evidence in the record on that point. Tatum provided information that was used in
modeling,311 but the record does not show that Tatum told Kreinik to use Fairstead
files for that purpose.312
Tatum did not cause Kreinik to breach either the competition or confidentiality
restrictions in his employment agreement. Because Fairstead failed to prove the third
element of a tortious interference claim, the claim fails.
G. The Counterclaim For Breach Of Fiduciary Duty
Shifting from contract to tort, Fairstead sought to prove that Tatum breached
the fiduciary duties he owed as an employee of Fairstead and as a member of
Fairstead Affordable. A claim for breach of fiduciary duty is an equitable tort.313 The
claim has only two formal elements: (i) the existence of a fiduciary duty that the
defendant owes to the plaintiff and (ii) breach of that duty.314
311 Kreinik Tr. 1350–51.
312 See Tatum Tr. 410–12; Kreinik Tr. 1350–51.
313 Hampshire Gp., Ltd. v. Kuttner, 2010 WL 2739995, at *54 (Del. Ch. July 12,
2010) (“A breach of fiduciary duty is easy to conceive of as an equitable tort.”); see
Restatement (Second) of Torts, supra, § 874 cmt. b (“A fiduciary who commits a breach
of his duty as a fiduciary is guilty of tortious conduct . . . .”). See generally J. Travis
Laster & Michelle D. Morris, Breaches of Fiduciary Duty and the Delaware Uniform
Contribution Act, 11 Del. L. Rev. 71 (2010).
314 See Beard Rsch., Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch.), aff’d sub nom.
ASDI, Inc. v. Beard Rsch., Inc., 11 A.3d 749 (Del. 2010); accord ZRii, LLC v. Wellness
Acq. Gp., Inc., 2009 WL 2998169, at *11 (Del. Ch. Sept. 21, 2009) (citing Heller v.
88
1. The Good Faith Provision
Fairstead first frames its fiduciary duty claim in terms of the Good Faith
Provision in the Operating Agreement. As discussed, that provision does not impose
fiduciary duties. It is a contractual obligation that requires good faith. For that
reason, this decision analyzed the Good Faith Provision as part of the alleged
breaches of the Operating Agreement. But that does not end the fiduciary duty
analysis.
2. The Fiduciary Duty Provision In The Operating Agreement
Although the Good Faith Provision in the Operating Agreement did not impose
fiduciary duties on Tatum, a different provision did. The Delaware Limited Liability
Company Act (the “LLC Act”), like Delaware’s other alternative entity statutes,
permit an entity’s governing agreement to “expand[] or restrict[] or eliminate[]”
fiduciary duties.315 Drafters of entity agreements almost invariably use that
authority to restrict or eliminate fiduciary duties.316 Before this case, I do not think I
Kiernan, 2002 WL 385545, at *3 (Del. Ch. Feb. 27, 2002), aff’d, 806 A.2d 164 (Del.
2002) (TABLE)).
315 6 Del. C. § 18-1101(c) (“To the extent that, at law or in equity, a member or
manager or other person has duties (including fiduciary duties) to a limited liability
company or to another member or manager or to another person that is a party to or
is otherwise bound by a limited liability company agreement, the member’s or
manager’s or other person’s duties may be expanded or restricted or eliminated by
provisions in the limited liability company agreement . . . .”).
316 See El Paso Pipeline GP, 113 A.3d at 193 & n.4; Bandera Master Fund LP
v. Boardwalk Pipeline P’rs, LP, 2019 WL 4927053, at *12 (Del. Ch. Oct. 7, 2019).
89
had ever seen a provision expanding fiduciary duties. But for Tatum alone, the
drafters of the Operating Agreement took the road less traveled.
The Operating Agreement provides that Fairstead Affordable is managed by a
“Majority in Interest.”317 Only one member—FCM Affordable—owns a “Majority in
Interest” (its 64.75% membership interest).318 FCM Affordable was therefore the sole
member with manager rights, making Fairstead Affordable a manager-managed
entity.319
In a manager-managed entity, the manager owes default fiduciary duties to
the LLC and its members; the members do not.320 Tatum therefore did not owe default
317 JX 5280 § 5.1 (“The property, business and affairs of the Company shall be
managed by a Majority in Interest. A Majority in Interest shall have full authority,
power and absolute discretion to make all decisions with respect to the Company’s
business and to perform such other services and activities as set forth in this
Agreement.”); JX 5280 at 6 (“‘Majority in Interest’ shall mean the Members holding
more than fifty percent (50%) of the aggregate Membership Interests held by all
Members.”).
318 JX 5280 at Schedule I (indicating that FCM Affordable holds a 64.75%
membership interest in Fairstead Affordable).
319This outcome differs from the default rule under the LLC statute that
provides for member management by a majority in interest. See 6 Del. C. § 18-402.
The Operating Agreement does not create a member-managed entity in which all
members have equal managerial rights with the members acting by a majority in
interest. Cf. id. The Operating Agreement vests managerial authority in the
“Majority in Interest,” which can only be FCM Affordable.
320 Feeley v. NHAOCG, LLC, 62 A.3d 649, 662 (Del. Ch. 2012) (“Managers and
managing members owe default fiduciary duties; passive members do not.”); Beach to
Bay Real Estate Ctr. LLC v. Beach to Bay Realtors Inc., 2017 WL 2928033, at *5 (Del.
Ch. July 10, 2017) (“[O]nly managing members or controllers owe fiduciary duties by
default in LLCs.”).
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fiduciary duties under the LLC Act. But the Operating Agreement provides that
Tatum “owe[s] fiduciary duties to [Fairstead Affordable] and the other Members.”321
Otherwise, the Operating Agreement eliminates fiduciary duties!322
It is frankly unclear what this structure envisions. How does a non-managing
member owe fiduciary duties qua member when that member has no ability to take
action as a member? What would the resulting duties be? The parties have not paid
any meaningful attention to this topic.
The core fiduciary principle is the duty of loyalty.323 The duty of loyalty
generally requires that a fiduciary for an entity act in subjective pursuit of the best
interests of the entity and avoid any conflicts of interest that could cause even a
person acting in subjective good faith to act disloyally.324 By imposing fiduciary duties
on a minority member, the Operating Agreement seems to have intended to require
321 JX 5280 § 6.10(a).
322 Id.
323 See generally Ontario Provincial Council of Carpenters’ Pension Tr. Fund v.
Walton, 294 A.3d 65, 94 (Del. Ch. 2023) (“The duty of loyalty is the core fiduciary
principle.”); Hawkins v. Daniel, 2021 WL 3732539, at *11 (Del. Ch. Aug. 24, 2021)
(“The fiduciary principle generally requires that a fiduciary act loyally and in good
faith.”); Frederick Hsu Living Tr. v. ODN Hldg. Corp., 2017 WL 1437308, at *20 (Del.
Ch. Apr. 14, 2017) (“What the fiduciary principle requires in every scenario is that
directors strive to maximize value for the benefit of the residual claimants.”).
324 See generally Auriga Cap. Corp. v. Gatz Props., 40 A.3d 839, 863, 875, 877
(Del. Ch.) (evaluating whether LLC manager engaged in “bad faith” conduct and
acted for “selfish reason[s]” in breach of fiduciary duty of loyalty analysis), aff’d, 59
A.3d 1206 (Del. 2012).
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the minority member to be loyal when acting as a minority member (the “Minority
Member Duty Provision”). Fairstead failed to prove that Tatum breached the
fiduciary duty of loyalty that the Minority Member Duty Provision imposed.
a. Restructured Fairstead And The Separate Company
Fairstead first argues that Tatum breached his fiduciary duties by secretly
working with Blodgett to gain control of Fairstead or start a competing business using
Fairstead’s resources. Fairstead failed to prove that claim.
Tatum’s efforts regarding Restructured Fairstead (“Plan A”) and the Separate
Company (“Plan B”) were acts he took as an employee. He did not take those actions
as a holder of a minority equity interest in Fairstead Affordable. Fairstead cannot
use the Minority Member Duty Provision to claim a breach of the duty of loyalty based
on this conduct.
Assuming for the sake of argument that the Minority Member Duty Provision
could extend to this conduct, Delaware courts recognize a “privilege” for departing
employees to “prepare or make arrangements to compete with their employers prior
to leaving . . . without fear of incurring liability for breach of their fiduciary duty of
loyalty.”325 Exceptions to this privilege include situations “where the employee has
committed some fraudulent, unfair or wrongful act.”326 Examples of misconduct that
325 Sci. Accessories Corp. v. Summagraphics Corp., 425 A.2d 957, 962–63, 965
(Del. 1980) (citations omitted).
326 Id. at 965 (citations omitted).
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defeats the privilege include misappropriating trade secrets, misusing confidential
information, soliciting customers before ceasing employment, conspiring to bring
about mass resignation of key employees, or usurping an employer’s business
opportunity.327
The Court of Chancery has found that it does not constitute a breach of duty
for employees to threaten to resign if their demands are not met, even if they warn
that their resignations could ruin the business.328 In Lazard, a fund sued former
employees and accused them of organizing a “lift-out scheme.”329 The court rejected
the idea that employees breached their fiduciary duties by leveraging their key man
status, reasoning that “[a]ny damages suffered . . . flowed not from unlawful conduct
of [the employees] but from the failure of Lazard . . . to plan for the contingency that
their key human capital might exercise its right to depart.”330
Tatum’s conduct did not reach the level of a “fraudulent, unfair or wrongful
act.”331 Instead, Goldberg encouraged Blodgett and Tatum to develop a restructuring
plan that might be acceptable to Feldman. Tatum was not disloyal to Fairstead
327 Id. (citations omitted).
328 See Lazard Debt Recovery GP v. Weinstock, 864 A.2d 955, 958–59 (Del. Ch.
2004).
329 Id. at 964.
330 Id. at 958–59.
331 Cf. Sci. Accessories, 425 A.2d at 965.
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Affordable or any of its members when he worked on ideas for a Restructured
Fairstead under “Plan A.”
Tatum also did not breach his fiduciary duties under Delaware law by working
on the backup plan known as “Plan B.” Tatum did not do anything that harmed
Fairstead Affordable. He did not misuse Fairstead’s confidential information or
conspire to bring about a mass resignation of Fairstead’s key employees. And Tatum
never joined Blodgett’s new venture. Tatum was entitled to tell Feldman and
Goldberg that he planned to leave because he was unhappy. He was also entitled to
prepare to compete without fear of incurring liability for a breach of his duty of
loyalty, as long as his efforts did not impair his work. The record shows that Tatum
performed exemplary work throughout his tenure at Fairstead Affordable.
b. The Alleged Solicitation Of Fairstead Employees
Fairstead next argues that Tatum breached the duty of loyalty imposed by the
Minority Member Duty Provision by soliciting other Fairstead employees to leave and
join a new venture with Blodgett. Fairstead again failed to prove a breach.
As with the prior discussion, Tatum’s interactions with other employees were
acts he took as an employee. He did not take those actions as a holder of a minority
equity interest, so Fairstead cannot use the Minority Member Duty Provision to claim
a breach of the duty of loyalty based on this conduct.
Assuming for the sake of argument that the Minority Member Duty Provision
could encompass this conduct, Tatum did not breach his duty of loyalty. Under
Delaware law, mere solicitation of a colleague is not a fiduciary breach; rather, an
94
employee must engage in a “conspiracy to bring about mass resignation of an
employer’s key employees.”332 For the reasons discussed in the context of the Good
Faith Provision, Tatum did not do that. Only two employees—Kreinik and Sussi—
were at issue, which was not a mass resignation. Both were unhappy and would have
left anyway. Feldman and Goldberg caused them to leave by failing to give them
equity.
c. The Alleged Misappropriation Of Confidential
Information
Fairstead last contends that Tatum breached the duty of loyalty imposed by
the Minority Member Duty Provision by misappropriating confidential information.
Fairstead failed to prove a breach.
For starters, the same reasoning about the inapplicability of the Minority
Member Duty Provision applies. Tatum downloaded information as an employee, not
as a minority member.
Assuming the duty did apply, then Fairstead would be on stronger footing.
“Most basically, the duty of loyalty proscribes a fiduciary from any means of
misappropriation of assets entrusted to his management and supervision.”333
Delaware courts have also found that downloading documents for one’s “own purpose”
332 Beard Rsch., 8 A.3d at 602.
333 U.S. W., Inc. v. Time Warner, Inc., 1996 WL 307445, at *21 (Del. Ch. June
6, 1996).
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can be a fiduciary breach.334 But in every case, the employee used the information to
compete and failed to return the documents.
Tatum’s initial downloading was improper, but he did not go any further. He
did not disclose any confidential information to third parties or use any of it to
compete with Fairstead. Tatum admitted that the downloading was a mistake, and
that’s exactly what it was: a mistake. He promptly remedied his mistake. His conduct
does not rise to the level of a breach of the duty of loyalty.
3. Fairstead’s Claim For Breach Of Fiduciary Duties Under New
York Law
Fairstead next points to Tatum’s fiduciary duties as an employee and agent of
Fairstead, which are governed by New York law. Fairstead argues that the same
underlying conduct constituted a breach of those duties.
As an employee and agent under New York law, Tatum owed duties of good
faith and loyalty to his employer.335 New York law prohibits an employee “from acting
in any manner inconsistent with his agency or trust,” and the employee “is at all
times bound to exercise the utmost good faith and loyalty in the performance of his
334 See Metro Storage, 275 A.3d at 854–57; Seibold v. Camulos P’rs, 2012 WL
4076182, at *21 (Del. Ch. Sept. 17, 2012).
335 CBS Corp. v. Dumsday, 702 N.Y.S.2d 248, 251 (App. Div. 2000); Poller v.
BioScrip, Inc., 974 F. Supp. 2d 204, 227 (S.D.N.Y. 2013), on reconsideration, 2014 WL
13109132 (S.D.N.Y. Apr. 14, 2014).
96
duties.”336 Tatum had “an affirmative duty at all times to act in his employer’s best
interests.”337 Fairstead did not prove a breach.
Fairstead again relies on the same conduct, but this time cites what it portrays
as a winning precedent in Duane Jones.338 In that decision from 1954, the New York
Court of Appeals found that a group of employees breached their fiduciary duties by
threatening to resign en masse if their employer did not agree to sell them a
controlling interest in the company.339 That aspect of Duane Jones seems like strong
authority for Fairstead, but there was more to the decision. The employees also
“presold” the company’s customers to their competing business, poached 90% of the
company’s skilled employees and the majority of its working force, and acquired
upwards of 50% of the company’s business overnight.340 Duane Jones was a perfect
storm for employees facing a breach of duty claim.
Over the ensuing seven decades, New York courts have recognized the extreme
facts that resulted in the Duane Jones ruling. As one decision noted, “The dominating
purpose in the Duane Jones case was to damage and paralyze the plaintiff corporation
336 CBS, 702 N.Y.S.2d at 251 (internal quotation marks omitted).
337 Mar. Fish Prods., Inc. v. World-Wide Fish Prods., Inc., 474 N.Y.S.2d 281,
286 (App. Div. 1984).
338 See Duane Jones Co. v. Burke, 117 N.E.2d 237 (N.Y. 1954).
339 Id. at 241, 243, 245.
340 Id.
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to enable the defendants to seize it or force a sale to them on their own terms.”341 New
York decisions have emphasized that the employees in Duane Jones did not merely
say they would leave if their employer did not agree to their demands. They engaged
in prohibited tactics that included soliciting the company’s clients when they were
still employed and “attempt[ing] to panic and break the morale of the employees.” 342
Duane Jones does not stand for the proposition that threatening to leave is a breach
of duty. It stands for the proposition that “en masse resignations may support a claim
for breach of fiduciary duty where those resignations are part of a coordinated effort
to ‘benefit [the defendants] through destruction of plaintiff’s business.’”343
Like Delaware courts, New York decisions recognize that “[t]aking preparatory
steps, while still in the employer’s employ, to enter into a competing business is not
a breach of an employee’s duty of loyalty as long as the employee does not use the
employer’s time or resources to do so.”344 Creating a “commercial strategy” for a future
company does not breach the duty of loyalty.345 Talking to a fellow employee about
leaving is not a breach of duty, although New York decisions have found that
341 Town & Country House & Home Serv., Inc. v. Newbery, 147 N.E.2d 724, 725
(N.Y. 1958).
342 Id.; see Poller, 974 F. Supp. 2d at 227.
343 In re Document Techs. Litig., 275 F. Supp. 3d 454, 466–67 & n.12 (S.D.N.Y.
2017).
344 Jeremias v. Toms Cap. LLC, 167 N.Y.S.3d 459, 462 (App. Div. 2022).
345 TileBar v. Glazzio Tiles, 723 F. Supp. 3d 164, 206 (E.D.N.Y. 2024).
98
employees breached their fiduciary duties when the employees used the company’s
staff and equipment to “set up their new firm” and “solicit[ed] its clients and
employees to follow them to their new firm.”346 And under New York fiduciary law,
an employee cannot “use his principal’s . . . proprietary secrets to build the competing
business.”347
With this deeper understanding of Duane Jones and New York law, the
operative legal principles do not differ materially from Delaware law. For the same
reasons this decision has already discussed, Tatum did not breach his fiduciary
duties.
H. The Counterclaim For Secondary Liability For Breaches of Fiduciary
Duty
Fairstead next contends that Tatum should be held secondarily liable for
Blodgett’s breaches of fiduciary duty. Fairstead invokes two theories of secondary
liability: (1) aiding and abetting and (2) conspiracy.
To prevail on their aiding and abetting claim, Fairstead must prove: “(1) a
breach by a fiduciary of obligations to another, (2) that the defendant knowingly
induced or participated in the breach, and (3) that plaintiff suffered damage as a
346 Weiser LLP v. Coopersmith, 859 N.Y.S.2d 634, 636 (App. Div. 2008); see
Duane Jones, 117 N.E.2d at 241, 243, 245.
347 Bus. Networks of N.Y. Inc. v. Complete Network Sols. Inc., 1999 WL 126088,
at *3 (N.Y. Sup. Ct. Feb. 19, 1999), aff’d in part as modified, 696 N.Y.S.2d 433 (App.
Div. 1999).
99
result of the breach.”348 New York courts also require that the aider or abettor have
substantially assisted the party in breach. “A person knowingly participates in a
breach of fiduciary duty only when he or she provides ‘substantial assistance’ to the
primary violator.”349 Substantial assistance occurs “when a defendant affirmatively
assists, helps conceal or fails to act when required to do so, thereby enabling the
breach to occur.”350
In the arbitration, Fairstead sought to prove that Blodgett breached his
fiduciary duties by improperly soliciting Fairstead employees, misappropriating
confidential information, attempting to usurp Fairstead’s business opportunities, and
attempting to wrest control of Fairstead. The arbitrator found that Blodgett breached
his fiduciary duties by trying to solicit Fairstead employees and misusing Fairstead’s
proprietary information.351 But the arbitrator found that Fairstead failed to prove
Blodgett attempted to usurp Fairstead’s business opportunities and to wrest control
of Fairstead, “particularly in light of the tactics employed by Feldman in connection
with Blodgett’s termination.”352 The arbitrator also found that Blodgett did not
348 Louis Cap. Mkts., L.P. v. REFCO Gp. Ltd., LLC, 801 N.Y.S.2d 490, 493 (Sup.
Ct. 2005).
349 Kaufman v. Cohen, 760 N.Y.S.2d 157, 170 (App. Div. 2003).
350 Id.
351 Arb. Decision at 30.
352 Id.
100
misappropriate trade secrets, aid or abet Tatum or Kreinik in allegedly breaching
their fiduciary duties, or tortiously interfere with Tatum and Kreinik’s employment
agreements. Blodgett’s breaches of fiduciary duty arise from his solicitation of
Fairstead employees and his misappropriation of confidential information.
While Tatum could be vicariously liable for Blodgett’s tortious actions,
Blodgett’s conduct is not dispositive in proving Fairstead’s claims against Tatum. 353
Blodgett and Tatum may have been “attached at the hip,”354 and they did form a
common law partnership for purposes of negotiating for a controlling equity interest
in Fairstead’s affordable housing business or starting their own business, but their
conduct diverged at critical points.
The record does not show that Tatum knowingly induced or participated in
either breach. Tatum did not coordinate with Blodgett to download Fairstead’s
confidential information. Tatum was not aware that Blodgett was sharing
confidential information with the Sussman Office or the Tisch Office. The record also
does not show that Tatum substantially assisted Blodgett in soliciting Kreinik and
Sussi for a rival business. And Tatum did not join Tredway.
353 See 68 C.J.S. Partnership § 209 (“The liability of the other partners is no
greater or less than the liability of the one causing the injury. The partnership is
liable if the acting partner is found liable for acts taken on behalf of the partnership
but neither the partnership nor its members may be held liable for the wrongful act
of a partner for which that partner himself or herself is not liable.” (internal citations
omitted)).
354 Blodgett Tr. 688, 776.
101
Because Fairstead failed to prove the second element of an aiding and abetting
claim, the analysis need not proceed further.
The conspiracy claim fares no better. “In the fiduciary duty context, conspiracy
is treated essentially as coterminous with aiding and abetting.”355 Consequently, “the
confederation requirement includes ‘knowing participation’ in the conspiracy.”356 The
conspiracy analysis falls short for the same reasons as the aiding and abetting claim.
I. Fee Shifting
Both sides seek expenses (including attorneys’ fees). Sometimes parties will
“argue their merits arguments in their trial briefs and then conclude their brief by
presenting an argument why, if they win on the merits, they are entitled to attorneys’
fees.”357 But that is not the required procedure. It can be easier for the court to
evaluate the merits of any fee-shifting arguments after finding facts determining
liability. The parties should think hard about whether they have grounds to shift
attorneys’ fees. If they think they do, they should confer and propose a briefing
schedule. The parties may not use any motions for attorneys’ fees to reargue the
court’s factual findings or legal rulings.
355 OptimisCorp v. Waite, 2015 WL 5147038, at *57 (Del. Ch. Aug. 26, 2015),
aff’d, 137 A.3d 970 (Del. 2016).
356 Id.
357 Biolase, Inc. v. Oracle P’rs, L.P., 97 A.3d 1029, 1036 (Del. 2014).
102
III. CONCLUSION
Judgment will be entered against the defendants and in favor of Tatum for the
amounts identified in this opinion. Judgment will be entered against Tatum and in
favor of the defendants for the expenses they incurred investigating Tatum’s taking
of confidential information.
Tatum and the defendants are entitled to pre- and post-judgment interest in
connection with their successful claims. Interest will accrue at the legal rate,
compounded quarterly, with the interest rate changing with changes in the reference
rate.
Within thirty days, the parties must submit a form of order to implement this
decision. The parties should attempt to agree on the date when pre-judgment interest
will begin to run. If disputes over that issue or other matters need to be addressed
before a final judgment can be entered, then the parties must submit a joint letter
identifying those issues and proposing a path forward. That instruction enlists the
parties’ assistance in ensuring that no issues have been overlooked. It is not an
invitation to raise new issues or seek a do-over.
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